-----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, HT91Qc5Yg6xBB9S6gdo7qJhgK88epDhnm2v+oyq0Ud4DCyA2SJU4a7kB+bv+sOmq 7vmg7JKihe702bb3ujKBsg== 0000912057-96-004779.txt : 19960321 0000912057-96-004779.hdr.sgml : 19960321 ACCESSION NUMBER: 0000912057-96-004779 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELLUS SYSTEMS INC CENTRAL INDEX KEY: 0000836106 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 770024666 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17157 FILM NUMBER: 96536350 BUSINESS ADDRESS: STREET 1: 81 VISTA MONTANA CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089439700 MAIL ADDRESS: STREET 2: 81 VISTA MONTANA CITY: SAN JOSE STATE: CA ZIP: 95134 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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 0-17157 NOVELLUS SYSTEMS, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 77-0024666 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3970 NORTH FIRST STREET, SAN JOSE, CA 95134 (Address of principal executive offices) (Zip Code) (408) 943-9700 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ None N/A Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of March 7, 1996 the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $580,386,508.00 based on the average of the high and low prices of the Common Stock as reported on the Nasdaq National Market on such date. Shares of Common Stock held by officers, directors and holders of more than 5% of the outstanding Common Stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of Common Stock outstanding on March 7, 1996 was 15,999,199. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Documents Incorporated by Reference: Part II of this Report on Form 10-K incorporates information by reference to Registrant's 1995 Annual Report to Shareholders. Part III of this Report on Form 10-K incorporates information by reference from the Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders. PART I ITEM 1. BUSINESS Novellus is a leading supplier of high productivity chemical vapor deposition (CVD) systems used in the fabrication of integrated circuits. CVD systems are used to deposit all of the dielectric (insulating) layers and certain of the conductive metal layers on the surface of a semiconductor wafer. The overall growth in the semiconductor industry and the increasing number of layers used in complex integrated circuits have lead to increased demand for advanced CVD equipment. The Company's products are differentiated by their simultaneous ability to provide superior film quality while providing the highest productivity and lowest cost of ownership in the advanced CVD market. The Company's strategy is to focus on major semiconductor manufacturers, and the Company has sold one or more of its systems to each of the 20 largest semiconductor manufacturers in the world. INDUSTRY BACKGROUND The semiconductor industry has experienced significant growth in recent years due to the continued growth of the personal computer market, the expansion of the telecommunications industry, the emergence of new applications such as consumer electronics products, wireless communications devices and mobile computers and the increased semiconductor content in these electronics systems. Many of these new applications have been made possible by significant advances in the performance of and lower costs for integrated circuits. In response to the growth in demand for integrated circuits, the semiconductor industry is significantly increasing its manufacturing capacity through the expansion of existing facilities and construction of new facilities. The fabrication of integrated circuits requires a number of complex and repetitive processing steps, including deposition, photolithography and etch. Deposition is a process in which a film of either electrically insulating or electrically conductive material is deposited on the surface of a wafer. The two principal methods of thin film deposition are CVD, which can be used to deposit both insulating and conductive films, and physical vapor deposition (PVD), which is used primarily for sputtering conductive metals onto the wafer surface. In the CVD process, wafers are typically placed in a reaction chamber and a variety of pure and precisely metered gases are introduced while some form of energy is added to activate a chemical reaction on the wafer surface. The result of this reaction is the deposition of a film on the wafer. CVD has become the predominant deposition solution for smaller line width geometry semiconductor devices because CVD is more effective than PVD in uniformly filling the narrower spaces and holes in depositing insulating material and certain metals in advanced devices. CVD processes are used to deposit all of the dielectric films and certain conductive, metal films in an integrated circuit. The dielectric layers in an integrated circuit include the initial interlayer, portions of the interconnect layers and the final passivation layer. CVD is also used for deposition of conductive metal layers, particularly those metals that are more difficult to deposit in smaller line width geometry devices through conventional PVD or other deposition technology. CVD technology is particularly effective for depositing blanket tungsten as a "plug" layer that connects one conductive metal layer to another in a multi-level integrated circuit. For such applications, tungsten is replacing aluminum, which has certain physical properties that reduce its efficacy for the smaller interconnect holes of devices with smaller line width geometries. 2 Advanced integrated circuit technology has created increased demand for more sophisticated semiconductor processing equipment. Today's complex semiconductor devices, such as 64 megabit DRAM memories and 64-bit microprocessors, are being designed with .35 micron and below micron line width geometries, and the microprocessors have up to four layers of interconnect circuitry. The next generation of semiconductor devices, including 256 megabit DRAMs and 64-bit microprocessors, are being designed with .25 micron line geometries, and the microprocessors will incorporate four or more interconnect layers. Each additional interconnect layer requires three separate layers of deposition, which include the initial metal layer, a non-conductive dielectric layer and then a "plug" metal film to fill patterned holes in the dielectric layer that connects the metal layers on either side of the dielectric. The Company believes that the greater complexity and number of interconnect layers in advanced integrated circuits will enable the markets for dielectric and metal CVD systems to experience significant growth. Semiconductor manufacturers generally measure the cost performance of their production equipment in terms of "cost per wafer," which is determined by factoring in the fixed costs for acquisition and installation of the system, its variable operating costs and its net throughput rate. A system with higher throughput allows the semiconductor manufacturer to recover the purchase price of the system over a greater number of wafers and thereby reduce the cost of ownership of the system on a per wafer basis. Throughput is most accurately measured on a net or overall basis, which takes into account the processing speed of the system and any non-operational downtime for cleaning, maintenance or other repairs. Yield and film quality are also significant factors to the semiconductor manufacturer in selecting processing equipment. The increased costs of larger and more complex semiconductor wafers have made high yields extremely important to semiconductor manufacturers. To achieve higher yields and better film quality, deposition systems must be capable of repeating the original process on a consistent basis without a disqualifying level of defects. This characteristic, known in the industry as "repeatability," is extremely important in achieving commercially acceptable yields. Repeatability is more easily achieved in those systems that can operate at desired throughput rates without requiring the system to approach its critical tolerance limits. The continuing evolution of semiconductor devices to smaller line width geometries and more complex multi-level circuitry has significantly increased the cost and performance requirements of the capital equipment used to manufacture these devices. Many of the advanced eight inch fabrication lines that are currently planned or in construction will cost up to $1 billion each, representing a substantial increase over the costs of prior generation fabrication facilities. Increased capital depreciation costs will continue to become a much larger percentage of the aggregate production costs for semiconductor manufacturers relative to labor, materials and other variable manufacturing costs. As a result, there has been an increasing focus by the semiconductor industry on obtaining increased productivity and higher returns from its semiconductor manufacturing equipment, thereby reducing the effective cost of ownership of such systems. THE NOVELLUS SOLUTION Novellus focuses on advanced CVD systems that provide superior film quality and yield while attaining the high levels of productivity required to meet the semiconductor industry's need for high volume, low cost wafer production. The Company's multi-station continuous processing architecture enables its systems to address each of the following critical parameters of CVD system performance: THROUGHPUT, COST PER WAFER. In contrast to CVD systems which process only one wafer at a time in a chamber, the Company's multi-station continuous processing systems can process five, six, or seven wafers at the same time in a chamber, leading to higher throughput levels. The design 3 simplicity and automatic cleaning capabilities of the Company's systems further increase net throughput by reducing production downtime. The Company believes that its systems attain the highest levels of productivity and lowest cost per wafer in the advanced CVD equipment market. YIELD AND FILM QUALITY. With Novellus' unique sequential, multi-station chamber design, each wafer receives a fraction of the desired film thickness at each of five, six, or seven deposition stations in the process chamber. The "averaging" effect created by this design tends to reduce anomalies in film thickness and thereby improves film uniformity and quality. The Company's systems can obtain within-wafer and wafer-to-wafer uniformity levels of +/- 1% of film thickness as measured at one standard deviation, which the Company believes is the highest in the industry. PROCESS REPEATABILITY. Because of the inherently higher throughput potential of continuous processing, the Company's systems are able to deposit materials at lower, more controlled rates than single wafer processing systems which generally deposit at faster rates closer to the process performance limits to achieve production-level throughputs. Lower deposition rates avoid straining the system's process tolerance limits and thereby permit increased process control and repeatability. STRATEGY The Company's objective is to increase its market share in the worldwide CVD market and strengthen its position as a leading supplier of semiconductor processing equipment. The key elements of the Company's strategy are as follows: EMPHASIS ON HIGH PRODUCTIVITY SYSTEMS. Novellus focuses on providing high productivity CVD systems to leading semiconductor companies. The Company addresses the needs of semiconductor manufacturers through its unique continuous processing architecture which enables its systems to attain high levels of wafer throughput, yield and film quality. The architecture's simple design also provides the Company's systems with greater up-time and smaller footprints compared to competitive systems, resulting in additional cost of ownership advantages. The Company intends to retain its focus on productivity by leveraging its continuous processing architecture in product enhancements and new product offerings. LEADERSHIP IN CVD TECHNOLOGY. The Company's strategy is to provide a family of deposition systems which utilize advanced CVD technologies to address leading-edge wafer processing needs. The Company's Concept One-Dielectric offers a proprietary dual frequency deposition technology to achieve superior results for a wide variety of films on wafers as large as eight inches and geometries as small as .35 micron. The Company's Concept One-W is used by manufacturers to connect multiple metal layers in advanced devices and the Company believes that it is currently the only system that provides full coverage tungsten deposition. The Company's Concept Two system is a modular CVD system designed to address the needs of wafer fabs that demand greater levels of wafer processing integration, higher volume production and increased factory automation. The Company is focusing its research and development efforts on additional Concept Two modules and "gap fill" technology for the next generation of reduced geometry fabrication lines. FOCUS ON MAJOR SEMICONDUCTOR MANUFACTURERS. The Company has sold one or more CVD systems to each of the 20 largest semiconductor manufacturers in the world. The long-term growth prospects for semiconductors has caused many of these manufacturers to plan major capacity expansions over the next several years. The Company's sales objective is to work closely with customers to secure purchase orders for multiple systems as such customers expand existing facilities and build next 4 generation wafer fabs. The Company seeks to build customer loyalty and achieve a high level of repeat business by offering high reliability products, comprehensive field support and a responsive parts replacement and service program. EXPANSION OF ASIAN MARKET PRESENCE. An industry source estimates that Asian manufacturers accounted for over half of the worldwide market for processing semiconductor equipment in 1995, due to Japan's large semiconductor industry and the recent rapid growth of manufacturers in Korea, Taiwan and Singapore. While Novellus derives a significant percentage of its net sales from the Asian marketplace, the Company believes that substantial additional growth potential exists. Currently, the Company's local presence in Asia includes sales and support offices through the Company's wholly owned subsidiary in Japan and one in each of Korea, Taiwan, Mainland China and Singapore. The Company also sells its products through a distributor in Japan and manufacturers representatives in other Asia-Pacific countries. To improve its market presence in Asia, Novellus in 1994 created and filled the position of President of Novellus Asia. Novellus feels it is an important part of its current business strategy to aggressively build its infrastructure in Asia to serve this rapidly growing region. LOW MANUFACTURING COST STRUCTURE. Novellus utilizes an outsourcing strategy for the manufacture of major subassemblies and performs system design, assembly and testing in-house. Novellus believes that outsourcing enables it to minimize its fixed costs and capital expenditures while also providing the flexibility to increase capacity as needed. This strategy also allows the Company to focus on product differentiation through system design and quality control. Through the use of third party manufacturing specialists, the Company ensures that its subsystems incorporate advanced technologies in robotics, gas panels and microcomputers. The Company works closely with its suppliers to achieve mutual cost reduction through joint design efforts. PRODUCTS Since the introduction of its original Concept One-Dielectric system in 1987, the Company has developed and now offers a family of processing systems for the CVD dielectric and metal markets. The Concept One-Dielectric deposits a variety of insulating or "dielectric" films on wafers including Oxide, Nitride and TEOS. In 1990, the Company introduced a modified version of the Concept One-Dielectric, the Concept One-W, which also uses a CVD process to deposit blanket tungsten metal films on wafers primarily as the metal interconnect between conductor layers in the integrated circuit layers. In November 1991, the Company introduced the Concept Two which is a modular, integrated production system that is capable of depositing both dielectric and conductive metal layers by combining one or more processing chambers around a common, automated robotic wafer handler. CONCEPT ONE-DIELECTRIC The Concept One-Dielectric is shipped in two versions, the Concept One-150, which processes 100, 125, and 150 mm (approximately 4, 5, and 6 inches) wafers and the Concept One-200, which processes 125, 150 and 200 mm (approximately 5, 6 and 8 inches) wafers and is designed for advanced eight inch fabrication lines. The Concept One consists principally of two attached chambers and associated hardware and electronics. The first chamber of the system, called the "loadlock," isolates the process chamber from the outside environment. Depending on the model of the Concept One-Dielectric, the loadlock accepts up to 75 wafers sized from 100 to 200 mm (approximately 4 to 8 inches) in diameter in cassette carriers. The operator inserts the cassettes of wafers in batches into the loadlock, and the pressure inside the 5 loadlock is decreased to create a vacuum, which matches the constant pressure level of the process chamber. A robotic arm, as the wafer transport mechanism, in the center of the loadlock transfers wafers one at a time from the cassettes to the process chamber and, upon completion of the deposition process, returns the finished wafers to the cassettes. The loadlock isolates the process chamber from the fabrication environment, permitting the process chamber to remain at constant temperature and pressure while wafers are transferred from the cleanroom to the loadlock and from the loadlock to the process chamber. These stable process chamber conditions enhance film quality, process repeatability, and throughput. The loadlock design also reduces particulate contamination because the robotic arm is the only moving mechanism in the loadlock and because the wafer cassettes are isolated from the cleanroom. The process chamber for the Concept One-Dielectric has six or eight stations depending on the particular model. One station is used as a load/unload site and the remaining five or seven stations are used for wafer deposition. Each deposition station employs a dedicated shower head which delivers gases and plasma energy to the wafer surface. In a six station process chamber for example, each wafer moves through the system and stops at each of the five deposition stations to receive one-fifth of its preprogrammed film thickness. Some CVD products, called "single wafer" systems, process only one wafer at a time in a process chamber, while multistation continuous process systems, like the Concept One, can process numerous wafers at the same time. The continuous processing capabilities of a multistation system generally enable such systems to attain higher throughput while using a less critical, more repeatable process than would be required for a single wafer system at equivalent throughput levels. This multiple deposition design also results in greater film uniformity and improved film quality because small variations in deposition at any single station tend to be offset by deposition of the same film at other stations. After the entire batch of up to 75 wafers has been processed and returned to the cassettes, an automatic cleaning cycle in the process chamber removes residual deposition materials, which could otherwise cause particulate contamination in a subsequent deposition process. During this cleaning cycle, the loadlock automatically returns to atmospheric pressure, enabling the operator to remove the cassettes of finished wafers without impacting system throughout. The Concept One-Dielectric uses electrical, radio frequency (RF) plasma energy to enhance thermal energy, enabling the system to process wafers at a relatively low temperature, thereby reducing the risk of heat damage to existing metal layers during processing. The system also suppresses hillock formation by limiting the time that the wafer is exposed to elevated temperatures prior to deposition. The wafer is heated for 10 seconds or less in advance of deposition in the Concept One-Dielectric, which the Company believes is one of the shortest preheat times of any CVD system. Stress related defects are addressed through the system by addition of a proprietary dual frequency, "stress control" option which the Company offers. The system's vacuum loadlock reduces the level of particulates, thereby improving film quality by isolating the process chamber of the Concept One-Dielectric from temperature and pressure fluctuations. In addition, the automatic cleaning capability and relatively simple mechanical design of the system reduce particulate contaminants and thereby increase yields and film quality. In 1995, the Company introduced an extension to its Concept One-Dielectric system, the Concept One Maxus. The Maxus extends the Company's leadership in nitride passivation by enhancing the nitride deposition rate while retaining superior nitride film performance. It also enhances the gap fill capability of TEOS films by enabling fluorinated-TEOS (F-TEOS) processing for .35 micron gap fill. F-TEOS enables the customer to lower the dielectric constant to 3.7, an important capability in enhancing device performance. 6 The Maxus is available on both the Concept One and Concept Two platform. CONCEPT ONE-W The Concept One-W was introduced in 1990 to address the tungsten CVD market. The Concept One-W deposits blanket tungsten metal films, which are increasingly used in advanced semiconductor devices to connect multiple metal layers in the integrated circuit. Like the Concept One-Dielectric, the Concept One-W uses a multistation, sequential deposition design that achieves high throughput with desirable film properties for the entire range of film thickness. The Concept One-W also uses an approach patented by the Company to provide full-coverage frontside tungsten deposition while preventing deposition of tungsten on the backside of the wafer. This capability helps prevent the generation of damaging particles on the wafer and eliminates the need for time-consuming etching on the backside of the wafer to remove the film. During 1993, the Concept One-W successfully completed a 21 day, 24 hour per day wafer manufacturing trial at SEMATECH, a U.S. semiconductor industry consortium. The results of this extended manufacturing trial demonstrated that the Concept One-W achieved or surpassed all program goals, which included system availability, film uniformity, particulates and other film properties. SEMATECH has also announced that the Concept One-W was one group of U.S. manufactured semiconductor production tools capable of producing devices with 0.35 micron geometries. The success of the Concept One-W in these SEMATECH trials was a major milestone for the Company in attaining market acceptance for the Concept One-W at major U.S. semiconductor manufacturers and in enabling the Company to penetrate certain of these important accounts. CONCEPT TWO The Concept Two, which was introduced in November 1991, is a modular, integrated production system that is capable of depositing both dielectric and conductive metal layers by combining one or more processing chambers around a common, automated robotic wafer handler. The Concept Two enables the semiconductor manufacturer to increase production throughput and system capability as needed without equipment replacement by adding additional process modules through the Concept Two's modular configuration. The Concept Two was initially available with a tungsten process chamber and a PVD process module for deposition of certain metal layers. In late 1994, a dielectric process module became available for Concept Two systems. The Concept Two has been designed to be compatible with the modular equipment interface standard established by the Modular Equipment Standards Committee (MESC), which is sponsored by SEMATECH. The Concept Two in a typical configuration incorporates a central cassette module and wafer handler that interfaces with the cleanroom and has multiple interfaces for process or transport modules. The cassette module manages wafer movement through its robotics between the various processing stations that can be included in a particular Concept Two configuration. Different cassette modules are available depending on the customer requirements. An optional isolation chamber is also available that is connected to the cassette module to connect high vacuum process chambers and other portions of the system. In 1993, the Company introduced the Concept Two-ALTUS, which combines the modular architecture of the Concept Two system with an advanced tungsten CVD process chamber. The system features a new dual loadlock cassette module with full factory automation capability to meet the high throughput requirements of high volume automated eight inch wafer fabs. This dual loadlock cassette 7 handler permits continuous operation of the process chamber with one loadlock, while a second loadlock is simultaneously being loaded or unloaded by the operator in the cleanroom. Through its modular configuration, the Concept Two enables the semiconductor manufacturer to combine multistation modules for slower processes with single wafer modules for faster processes to balance the throughput of the overall system. A dielectric version of the Concept Two ALTUS, the Concept Two SEQUEL, was shipped in late 1994. This new system brings the same level of factory automation and throughput to the dielectric market as the ALTUS does to the metals market. The Concept Two SEQUEL was initially shipped in a single chamber version targeted at thin dielectric films used in volume 200mm IMD production applications. In 1994, the Company introduced the Concept Two-Dual ALTUS tungsten deposition system. The Dual ALTUS features the production proven performance of Novellus' tungsten CVD chamber in a dual chamber configuration that delivers the throughput power to dramatically lower the cost of tungsten deposition. The Company feels that the Dual ALTUS is the best solution in the industry for very high volume 200mm wafer fabs producing state-of-the-art 0.35um semiconductor devices. Subsequent to 1994, the Company has continued to expand its Concept Two product offerings as follows: CONCEPT TWO DUAL SEQUEL This dual chamber version of the SEQUEL dielectric family is designed for high throughput deposition of thick films, such as layers before CMP (chemical- mechanical planarization), and dual layer passivation films. It utilizes two process chambers to provide the throughput power of twelve stations, resulting in dramatic improvements in productivity for these types of films. CONCEPT TWO SEQUEL-S This enhanced version of the SEQUEL system offers improved throughput performance for both thick and thin dielectric films, while occupying 40% less space than previous versions. It also provides a range of improved maintainability features and design enhancements that reduce customer facilities costs. It is available in both single and dual chamber versions. In addition, in 1995 the Company began accepting orders for its Concept Two Titanium Nitride (TiN) system. This system will be used to form a high quality, low cost barrier/adhesion layer prior to depositing tungsten (W). CONCEPT TWO SPEED Introduced in February 1996, SPEED is the Company's advanced dielectric gap fill system, the semiconductor capital equipment industry's first high-density plasma deposition solution capable of high-volume manufacturing. Speed is targeted for advanced inter-metal dielectric (IMD) deposition for 0.35 micron devices and below. The IMD market is the largest segment in dielectric CVD and is also the fastest growing. Speed is offered either as a stand alone gap fill system or integrated with the Concept Two SEQUEL to provide a complete high-throughput, low-cost gap fill and chemical mechanical polishing cap layer solution for logic manufacturing. The system utilizes a patented hemispherical source design and a proprietary electrostatic chuck to provide excellent fill, superior reproducibility, low damage and high throughput. The Company is shipping initial production deliveries in the first quarter of 1996. MARKETING, SALES AND SERVICE Novellus markets its products worldwide to manufacturers of semiconductors, including both captive fabrication lines, which produce semiconductors primarily for internal consumption, and merchant semiconductor manufacturers, which produce semiconductors primarily for sales to third party customers. In North America, the Company sells products primarily through a direct sales force. It has one manufacturer's representative. The Company's U.S. sales and support offices are located in Boston, Austin, Dallas, Phoenix, Hopewell Junction, New York, Williston, Vermont and Beaverton, Oregon. In Europe, the Company's products are predominantly sold through a wholly owned subsidiary, Novellus Systems, Ltd, which has a sales and support facility outside London and in Scotland. The Company also has a sales and support office in The Netherlands (Eindhoven). In Asia, the Company sells its products through a wholly owned subsidiary and a distributor in Japan, through wholly owned subsidiaries in Korea, Taiwan, Singapore and Mainland China, and manufacturers representatives in other Asia Pacific countries. The 8 Company's Japanese subsidiary maintains four offices in Japan located outside Tokyo and in Kyoto and Fukuoka. The Company also has one sales and support office located in Seoul, Korea. In 1994, the Company established a sales and service office in Taiwan, and in 1995, the Company formed sales and service offices in Singapore and Mainland China (Shanghai). The ability to provide prompt and effective field support is critical to the Company's sales efforts, due to the substantial operational and financial commitments made by customers that purchase a CVD system. The Company's strategy of supporting its installed base through both its customer support and research and development groups has served to encourage use of the Company's systems in production applications and has accelerated penetration of certain key accounts. The Company believes that its marketing efforts are enhanced by the technical expertise of its research and development personnel who provide customer process support and participate in a number of industry forums such as conferences and publications. The Company believes that its ability to service its customers is enhanced by the design simplicity of its systems. The Company generally warrants its products against defects in design, materials, and workmanship. In 1992, the Company became the first semiconductor equipment manufacturer to extend its warranty to 24 months from shipment and in 1993 also included the cost of all consumable parts in the system and preventative maintenance parts. The Company offers maintenance contracts as an additional service to its customers. For the years ended December 31, 1995 and 1994, respectively, one customer, Seki Technotron (a distributor in Japan), accounted for 11% and 13% of the Company's net sales, respectively. For the year ended December 31, 1993, an additional customer, Advanced Micro Devices, accounted for 12% of net sales. Export sales for the year ended December 31, 1995 were approximately $137.0 million, or 37% of net sales. For the years ended December 31, 1993, and 1994, export sales were $36.1 million and $92.9 million, respectively, or 32% and 41%, respectively. Export sales do not include sales made by the Company's Japanese subsidiary. Export sales increased due to strong international demand for semiconductor processing equipment, particularly in the Far East. Historically, the Company has sold a significant proportion of its systems in any particular period to a limited number of customers. Sales to the Company's ten largest customers in 1995 and 1994 accounted for 58% and 65% of net sales, respectively. The Company expects that sales of its products to relatively few customers will continue to account for a high percentage of its net sales in the foreseeable future. BACKLOG As of December 31, 1995, the Company's backlog was $151,456,000, as compared to a backlog of $102,184,000 at December 31, 1994. The Company includes in its backlog only those customer orders for which it has accepted purchase orders and assigned shipment dates within twelve months. All orders are subject to cancellation or rescheduling by customers with limited or no penalties. Because of orders received in the same quarter in which a system is shipped, possible changes in system delivery schedules, cancellations of orders and delays in systems shipments, the Company's backlog at any particular date is not necessarily a reliable indicator of actual sales for any succeeding period. 9 RESEARCH AND DEVELOPMENT The semiconductor manufacturing industry is subject to rapid technological change and new product introductions and enhancements. The Company's ability to remain competitive in this market will depend in part upon its ability to develop new and enhanced systems and to introduce these systems at competitive prices and on a timely and cost-effective basis. Accordingly, the Company devotes a significant portion of its personnel and financial resources to research and development programs and seeks to maintain close relationships with its customers to remain responsive to their product needs. The Company's current research and development efforts are directed at development of new systems and processes and improving existing system capabilities. The Company is focusing its research and development efforts on additional Concept Two modules, gap fill technology, and additional advanced technologies for the next generation of smaller geometry fabrication lines. Expenditures for research and development during 1995, 1994 and 1993 were $41,009,000, $26,012,000, and $16,860,000, respectively. The Company expects in future years that research and development expenditures will continue to represent a substantial percentage of net sales. The success of the Company in developing, introducing and selling new and enhanced systems depends upon a variety of factors, including product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, product performance in the field and effective sales and marketing. There can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products or in enhancing its existing products. As is typical in the semiconductor capital equipment market, the Company has experienced delays from time to time in the introduction of, and certain technical and manufacturing difficulties with, certain of its systems and enhancements and may experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. The Company's inability to complete the development or meet the technical specifications of any of its new systems or enhancements or to manufacture and ship these systems or enhancements in volume in a timely manner would materially adversely affect the Company's business, financial condition and results of operations. In addition, the Company may incur substantial unanticipated costs to ensure the functionality and reliability of its future product introductions early in the product's life cycle. If new products have reliability or quality problems, reduced orders or higher manufacturing costs, delays in collecting accounts receivable and additional service and warranty expense may result. Any of such events could materially adversely affect the Company's business, financial condition and results of operations. MANUFACTURING The Company's manufacturing activities consist primarily of assembling and testing components and subassemblies which are acquired from third party vendors and then integrated into a finished system by the Company. The Company utilizes an outsourcing strategy for the manufacture of major subassemblies and performs system design, assembly and testing in-house. Novellus believes that outsourcing enables it to minimize its fixed costs and capital expenditures while also providing the flexibility to increase production capacity. This strategy also allows the Company to focus on product differentiation through system design and quality control. Through the use of manufacturing specialists, the Company ensures that its subsystems incorporate advanced technologies in robotics, gas panels and microcomputers. The Company works closely with its suppliers on achieving mutual cost reduction through joint design efforts. 10 The Company manufactures its system units in clean-room environments which are similar to the clean rooms used by semiconductor manufacturers for wafer fabrication. This procedure is intended to reduce the amount of particulates and other contaminants in the final assembled system, which in turn improves yield and reduces the level of contaminants at the customer level. Following assembly, the completed system is packaged in a plastic shrink wrap to maintain cleanroom standards during shipment. Certain of the components and subassemblies included in the Concept One-Dielectric, Concept One-W and Concept Two are obtained from a limited group of suppliers. Although the Company seeks to reduce its dependence on these limited source suppliers, disruption or termination of certain of these sources could occur and such disruptions could have at least a temporary adverse effect on the Company's operations. Moreover, a prolonged inability to obtain certain components could have a material adverse effect on the Company's business and results of operations and could result in damage to customer relationships. COMPETITION Significant competitive factors in the semiconductor equipment market include system performance and flexibility, cost, the size of each manufacturer's installed customer base, capability for customer support and breadth of product line. The Company believes that it competes favorably in the CVD marketplace primarily on the basis of system performance and flexibility, cost and customer support capability. The semiconductor equipment industry is highly competitive. The Company faces substantial competition in the markets in which it competes from both established competitors and potential new entrants. In the CVD market, the Company's principal competitor is Applied Materials, Inc., which is a major supplier of CVD systems and has established a substantial base of CVD and other equipment in large semiconductor manufacturers. Certain of the Company's competitors have greater financial, marketing, technical or other resources, broader product lines, greater customer service capabilities and larger and more established sales organizations and customer bases than the Company. The Company may also face future competition from new market entrants from Japan and other overseas and domestic sources. The Company expects its competitors to continue to improve the design and performance of their products. There can be no assurance that the Company's competitors will not develop enhancements to or future generations of competitive products that will offer superior price or performance features. In addition, a substantial investment is required by customers to install and integrate capital equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular vendor's capital equipment, the Company believes that the manufacturer will be generally reliant upon that equipment for the specific production line application. Accordingly, the Company may experience difficulty in selling a product line to a particular customer for a significant period of time if that customer selects a competitor's product. Increased competitive pressure could lead to lower prices for the Company's products, thereby adversely affecting the Company's operating results. There can be no assurance that the Company will be able to compete successfully in the future. PATENTS AND PROPRIETARY RIGHTS The Company intends to continue to pursue primarily the legal protection of its technology through patent and trade secret protection. The Company currently holds nine patents in the United States, some with pending foreign counterparts, has ten patent applications pending in the United States and intends to file additional patent applications as appropriate. There can be no assurance that patents 11 will issue from any of these pending applications or that any claims allowed from existing or pending patents will be sufficiently broad to protect the Company's technology. While the Company intends to protect its intellectual property rights vigorously, there can be no assurance that any patents held by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. The Company also relies on trade secrets and proprietary technology that it seeks to protect, in part, through confidentiality agreements with employees, consultants and other parties. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or independently developed by others. On January 30, 1995, Applied Materials, Inc. (Applied) filed suit against the Company in the United States District Court, Northern District (the Court), alleging that the Company's TEOS products infringe one of Applied's patents that was issued in November 1994. Applied is requesting injunctive relief to enjoin the Company from allegedly infringing the subject patent, and is seeking unspecified damages for alleged past infringement, treble damages for alleged willful infringement and attorneys' fees and costs related to the suit. The Company filed counterclaims against Applied seeking a declaration that the subject patent is not infringed and is invalid and unenforceable, and seeking an injunction and unspecified actual and punitive damages from Applied in connection with certain conduct by Applied concerning the Company's customers. On April 12, 1995, the Court severed and stayed discovery on the Company's counterclaim against Applied in which the Company seeks an injunction against and damages from Applied in connection with certain conduct by Applied concerning the Company's customers. On September 15, 1995, the Company filed suit in the United States District Court, Northern District of California against Applied alleging that Applied's Tungsten products infringe U.S. Patent No. 5,238,499 ('449 patent) issued August 24, 1993 and assigned to the Company. The Company is requesting injunctive relief to enjoin Applied from infringing the '499 patent, and is seeking unspecified damages for past infringement, treble damages for willful infringement, and attorney's costs and fees related to the suit. Also on September 15, 1995 Applied filed suit against the Company in United States District Court, Northern District of California, alleging that one of the Company's Tungsten processes infringes on U.S. Patent No. 5,028,565 ('565 patent) issued July 2, 1991 and assigned to Applied. Applied is requesting injunctive relief to enjoin the Company from infringing the '565 patent, and is seeking unspecified damages for past infringement, treble damages for willful infringement, and attorney's costs and fees related to the suit. Applied is also requesting a finding that Applied has not infringed on any valid claims of the Company's '499 patent, and that the '499 patent is invalid and void. On October 10, 1995, the Company filed a counterclaim in United States District Court, Northern District of California in response to Applied's suit for infringement of the '565 patent alleging that Applied's TEOS products infringe on U.S. Patent No. 5,425,803 issued June 20, 1995 and assigned to the Company. The Company is requesting injunctive relief to enjoin Applied from infringing the subject patent, and is seeking unspecified damages for past infringement, treble damages for willful infringement, and attorney's costs and fees related to the suit. On October 26, 1995, the Company filed an amended counterclaim in United States District Court, Northern District of California in response to Applied's suit for infringement of the '565 patent, alleging that Applied's Tungsten products infringe U.S. Patent No. 5,374,594, issued December 20, 1994 and assigned to the Company. The Company is requesting injunctive relief to enjoin Applied from 12 infringing the subject patent, and is seeking unspecified damages for past infringement, treble damages for willful infringement, and attorneys' costs and fees related to the suit. The Company intends to vigorously pursue its claims and counterclaims, and defend Applied's claims. Management's expectations are that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position, cash flows, or results of operations, however based on future developments, management's estimate of the ultimate outcome could change in the near term. In addition, in the normal course of business, the Company from time to time receives inquiries with regard to possible other patent infringements. The Company believes it is unlikely that the outcome of the patent infringement inquiries will have a material adverse effect on the Company's financial position or results of operations. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Although the Company is not aware of any infringement by its products of any patents or proprietary rights of others except as claimed by Applied, further commercialization of the Company's products could provoke claims of infringement from third parties. In the future, litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by the Company, which by itself could have a material adverse effect on the Company's financial condition and operating results. Further, adverse determinations in such litigation could result in the Company's loss of proprietary rights, subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any of which could have a material adverse effect on the Company's financial condition and results of operations. OTHER CAUTIONARY STATEMENTS Certain of the statements contained in this Annual Report on Form 10-K are forward-looking statements that involve a number of risks and uncertainties, in addition to those risks and uncertainties described above. These additional risks and uncertainties could cause actual results to differ materially from those described herein and include the following: - MARKET RISK. The Company's business depends predominantly on capital expenditures of semiconductor manufacturers, which, in turn, depend on the current and anticipated market demand for integrated circuits and products utilizing integrated circuits. The semiconductor industry has historically been very cyclical and has experienced periodic downturns, which have had a material adverse effect on the semiconductor industry's demand for semiconductor processing equipment, including equipment manufactured and marketed by the Company. No assurance can be given that the Company's net sales and operating results will not be adversely affected if downturns or slowdowns in the rate of capital investment in the semiconductor industry occur in the future. In addition, the semiconductor equipment industry is highly competitive, and subject to rapid change and new products and enhancements. - COMPETITION. The Company faces substantial competition in each of the markets in which it sells its products. Certain of the Company's competitors are larger, and have greater resources, financial and otherwise, than the Company. There can be no assurance that the Company will be 13 successful, or as successful as its competitors, in selecting, developing, manufacturing, and marketing its new products, or enhancing its existing products. Failure to successfully develop new products could materially adversely affect the Company's business, financial condition, and results of operations. - PATENTS AND PROPRIETARY RIGHTS. There has also been substantial litigation regarding patent and other intellectual property rights in semiconductor related industries. The Company is currently involved in such litigation (see Note 9 to the consolidated financial statements), and, although it is not aware of any infringement by its products of any patent or proprietary rights of others, it could become involved in additional litigation in the future. Although the Company does not believe the outcome of the current litigation will have a material impact on the Company's financial condition or results of operations, no assurances can be given that this litigation or future litigation will not have such an impact. - INTERNATIONAL OPERATIONS. Export sales accounted for approximately 37%, 41%, and 32% of net sales in 1995, 1994, and 1993, respectively. The Company anticipates that export sales will account for a significant portion of net sales in the foreseeable future. As a result, a significant portion of the Company's sales will be subject to certain risks, including tariffs and other barriers, difficulties in staffing and managing foreign subsidiary operations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company is also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes, or other charges or restrictions will be implemented by the United States or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that any of these factors or the adoption of restrictive policies will not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, sales of systems shipped by the Company's Japanese subsidiary are denominated in Japanese Yen. The Company sells the systems to its Japanese subsidiary in U.S. Dollars. It then enters into forward foreign exchange contracts to hedge against the short- term impact of foreign currency fluctuations of intercompany accounts payable denominated in U.S. Dollars recorded by the Japanese subsidiary. EMPLOYEES At December 31, 1995, the Company had 790 full time employees. The success of the Company's future operations depends in large part on the Company's ability to recruit and retain engineers and technicians, as well as marketing, sales, service and other key personnel, who in each case are in great demand. There can be no assurance that the Company will be successful in retaining or recruiting key personnel. None of the Company's employees is represented by a labor union and the Company has never experienced a work stoppage, slowdown, or strike. The Company considers its employee relations to be good. ITEM 2. PROPERTIES The Company's operations are conducted primarily in four buildings located near each other in San Jose, California. The first serves as corporate headquarters and consists of 42,048 square feet under a sublease that expires in 1999. The second is used for research and development and customer demonstrations. It consists of 58,000 square feet under a lease that expires in 2001. The third is used 14 primarily for manufacturing and contains 42,624 square feet under a lease that expires in 1997 (with an option to renew through 2001). The fourth consists of 59,904 square feet under two subleases that expire in 1998 and 1999, and is used primarily for sales and service office space and warehousing. The Company also operates facilities in Machida, Tokyo Prefecture and Sagamihara, Kanagawa Prefecture, Japan. The former serves as corporate headquarters and sales offices and the latter as a service, technology, and customer demonstration center for the Company's Japanese subsidiary. The facility in Machida is operated under a two year lease expiring in 1996. The facility in Sagamihara is operated under a lease of two years with options to renew every two years up to a total of ten years. If all the options to renew are exercised, the lease would end in 2001. The Company leases various other smaller facilities worldwide which are used as sales and customer service centers. In January 1996, the Company entered into certain agreements which, if consummated, will result in the leasing of five buildings, three of which are already under lease or sublease. ITEM 3. LEGAL PROCEEDINGS See Item 1, Patents and Proprietary Rights. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is included under "Stock Information" on page 21 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included under "Selected Consolidated Financial Data" on page 17 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18-20 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is included on pages 21-33 of the Company's 1995 Annual Report to Shareholders and is incorporated herein by reference. Such information is listed under Item 14 of Part IV of this Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included under "Proposal No. 1: Election of Directors," "Other Information - Executive Officers" and "Compliance with Section 16(a) of the Exchange Act" in the Company's Proxy Statement to be filed in connection with its 1996 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included under "Other Information - - Executive Compensation" in the Company's Proxy Statement to be filed in connection with its 1996 Annual Meeting of Shareholders and is incorporated herein by reference. 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under "Other Information - Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement to be filed in connection with its 1996 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under "Other Information - Certain Transactions" in the Company's Proxy Statement to be filed in connection with its 1996 Annual Meeting of Shareholders and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS. The following financial statements and schedules of the Registrant are contained on pages 21-33 of the Company's 1995 Annual Report to Shareholders and are incorporated herein by reference: Report of Ernst & Young, LLP Independent Auditors. Consolidated Balance Sheets at December 31, 1995 and 1994. Consolidated Statements of Income for each of the three years in the period ended December 31, 1995. Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1995. Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1995. Notes to Consolidated Financial Statements. 2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules for each of the three years in the period ended December 31, 1995 are filed as part of this Report on Form 10-K and should be read in conjunction with the financial statements: Schedule II - Valuation and Qualifying Accounts. Schedules not listed above have been omitted because they are either inapplicable or the required information has been given in the financial statements or the notes thereto. (b) REPORTS ON FORM 8-K. None filed during quarter ended December 31, 1995. 17 (c) Exhibits. 3.1 (5) Amended and Restated Articles of Incorporation of Registrant. 3.2 (1) Form of Bylaws of Registrant, as amended to date. 4.1 (1) Registration Rights Agreement dated December 21, 1987 between Registrant, holders of Series A Preferred Stock, Series B Preferred Stock, Series D Preferred Stock, Warrants to purchase Series B and Series C Preferred Stock and Robert F. Graham, and amendment thereto. 10.1 (8) Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. 10.2 (9) First Amendment dated May 1, 1993 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. 10.3(10) Second Amendment dated April 30, 1994 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. 10.4 Third Amendment dated April 28, 1995 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. 10.5 (9) Credit Agreement dated April 30, 1993 between Registrant and Sanwa Bank of California, as amended August 19, 1993. 10.6 (9) Guaranty dated November 29, 1993 between Registrant and The Sanwa Bank Ltd. 10.7(10) Line of Credit Agreement dated June 13, 1994 between Registrant and Sanwa Bank of California. 10.8 Amendment dated May 2, 1995 of Commercial Credit Agreement dated June 13, 1994 between Registrant and Sanwa Bank of California. 10.9 (5) Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank. 10.10 (7) Change in Terms Agreement dated September 23, 1991 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank. 10.11 (8) Change in Terms Agreement dated July 29, 1992 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank. 10.12(9) Change in Terms Agreement dated May 12, 1993 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank. 10.13(9) Modification dated May 12, 1993 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank, as amended September 23, 1991 and July 29, 1992. 10.14(10) Loan Modification Agreement dated July 15, 1995 between Registrant and Silicon Valley Bank. 10.15(9) Commercial Guaranty dated May 12, 1993 between the Registrant, Silicon Valley Bank and Individual Employees of Novellus Systems, Inc. 10.16(7) Loan and Guaranty Agreement dated November 29, 1991 between Registrant and The Japan Development Bank. 10.17 Commercial Loan Agreement dated November 15, 1995 between Registrant and Sumitomo Bank of California. 10.18 Guarantee dated August 31, 1995 between Registrant and The Mitsubishi Bank, Limited. 10.19(5) Commercial Lease dated October 19, 1990 between Registrant and Sobrato Development Companies #871, concerning property located at 81 Vista Montana, San Jose, California. 10.20(1) Commercial Lease dated March 11, 1987 between Registrant and California Second, Ltd., concerning property located at 3950 North First Street, San Jose, California. 10.21(3) First Amendment dated February 8, 1989 to Commercial Lease dated March 11, 1987 between Registrant and California Second Ltd., concerning property located at 3950 North First Street, San Jose, California. 18 10.22 Lease dated September 26, 1995 between Registrant and W. F. Batton & Co., Inc. concerning property located at 3590 North First Street, San Jose, California. 10.23(10) Standard Sublease dated April 28, 1994 between Registrant and Granada Computer Services, Inc., concerning property located 3940 North First Street, San Jose, California. 10.24 Sublease Agreement dated January 13, 1995 between Registrant and LTX Corporation concerning property located at 3970 North First Street, San Jose, California. 10.25 Assignment and Assumption of Lease dated November 22, 1995 among Registrant, Circadian, Incorporated (Assignor) and California Second, Ltd. (Landlord) concerning property located at 3942 North First Street, San Jose, California. 10.26 Lease Agreement dated January 11, 1996 between Registrant and South Bay/Fortran concerning property located at 4415 Fortran Court, San Jose, California. 10.27(1) Commercial Lease dated May 2, 1988 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas. 10.28(6) Amendment dated March 27, 1990 to Commercial Lease dated May 2, 1988 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas. 10.29(9) Amendment dated March 29, 1993 to Lease dated May 2, 1993 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas. 10.30(10) Standard Office Building Lease Agreement dated August 15, 1994 between Registrant and Aetna Life Insurance Company concerning property located at 12840 Hillcrest Road, Suite 104, Dallas, Texas. 10.31(6) Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont. 10.32(7) Amendment dated May 23, 1991 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont. 10.33(9) Letter Extension dated October 25, 1993 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont. 10.34 Addendum dated August 10, 1995 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont. 10.35(7) Office Lease dated July 1, 1991 between Registrant and Ray Prather, concerning property located at 4090 W. State Street, Boise, Idaho. 10.36(8) Office Lease dated January 29, 1992 between Registrant and Alan Arkawy, concerning property located at 1123 Route 52, Fishkill, New York. 10.37 Lease dated August 14, 1995 between Registrant and East Fishkill Corporate Park Investments concerning property located at 25 Corporate Park Drive, Route 52, East Fishkill, New York. 10.38(7) Commercial Lease dated February 1, 1991 between Registrant (Nippon Novellus Systems, K.K.) and Tenko, K.K., concerning property located at 1-12-3 Kamitsuruma, Sagimihara City, Kanagawa Prefecture, Japan. 10.39(8) Commercial Lease dated June 15, 1992 between Registrant (Novellus Systems, Ltd.) and Exploitatiemaatschappij Dillenberg B.V., concerning property located at Dillenburgstraat 5-B Eindhoven, The Netherlands. 10.40(8) Commercial Lease dated March 26, 1992 between Registrant (Novellus Systems, Ltd.) and W.B. Properties Ltd., concerning property located at 1 to 5 Pyrford Road, West End Garage, West Byfleet, Surrey, United Kingdom. 19 10.41(9) Lease dated August 17, 1993 between Registrant and OTR, acting as the duly authorized nominee of the Board of State Teachers Retirement System of Ohio, concerning property located at 1701 Directors Boulevard, Austin, Texas. 10.42 Lease Agreement dated May 26, 1995 between Registrant and OTR, acting as the duly authorized nominee of the Board of State Teachers Retirement System of Ohio, concerning property located at 1701 Directors Boulevard, Austin, Texas. 10.43(9) Lease dated November 2, 1993 between Registrant and Arnbil Associates, concerning property located at 5 Mount Royal Avenue, Marlborough, Massachusetts. 10.44(9) Lease dated November 4, 1993 between Registrant and Canterbury Associates, concerning property located at 19 Walnut Hill Road, Poughkeepsie, New York. 10.45(9) Lease dated November 17, 1992 between Registrant and Aetna Casualty and Surety Company, concerning property located at Two Gateway, Suite 420, Phoenix, Arizona. 10.46(9) First Amendment dated November 30, 1993 to Lease dated November 17, 1992 between Registrant and Aetna Casualty and Surety Company, concerning property located at Two Gateway, Suite 420, Phoenix, Arizona. 10.47(9) Lease dated April 25, 1990 between Registrant and Korea Women's Missionary Union. 10.48 Office Rental Contract dated November 28, 1994 between Registrant (Novellus Systems Korea Co., Ltd.) and Suh Won Building Management Company concerning property located at 57 Garak-Dong Songpa-Gu, Seoul, Korea. 10.49 Sublease executed February 2, 1995 between Registrant (Novellus Systems, Ltd.) and Leyland DAF Finance PLC with the consent of Central Regional Council concerning property located at the Upper Ground Floor (East Wing), The Forum, Callendar Business Park, Falkirk, Scotland. 10.50 Commercial Lease Agreement dated February 1, 1996 between Registrant and Faison & Associates, Inc. d/b/a Southland Management Company, not individually, but solely as Management and Leasing Broker for Plaza Central I concerning property located at 6220 S. Orange Blossom Trail, Suite 186, Orlando, Florida. 10.51 Office Lease dated March 20, 1995 between Registrant and Hartford Underwriters Insurance Company concerning property located at 15350 North West Greenbrier Parkway, Suite B-340, Beaverton, Oregon. 10.52 Lease dated February 15, 1995 between Registrant (Novellus Systems Taiwan) and Mr. Woo-Shung Lin and Mr. Wing-Yee Lee concerning property located at 5F-1, No. 295, Sec. 2, Kwang Fu Road, Hsinchu, Taiwan R.O.C. (English translation of original exhibit in the Chinese language). 10.53(2) Equipment Lease dated March 28, 1989 between Registrant and Matsco Leasing Company. 10.54(7) Distribution Agreement dated April 1, 1991 between Registrant and Seki Technotron Corporation. 10.55(9) First Amendment dated January 1, 1993 to Distribution Agreement dated April 1, 1991 between the Registrant and Seki Technotron Corporation. 10.56 Distribution Agreement dated January 1, 1996 between Registrant and Seki Technotron Corporation. *10.57(7) Registrant's Amended and Restated 1984 Stock Option Plan, together with forms of agreements thereunder. *10.58(9) Registrant's 1992 Stock Option Plan, together with forms of agreements thereunder. *10.59(8) Registrant's 1992 Employee Stock Purchase Plan. *10.60(1) Form of Agent Indemnification Agreement and amendment thereto. *10.61(4) Employment Agreement dated June 1, 1989 between Registrant and Evert van de Ven. *10.62(8) Employment Agreement dated as of June 15, 1992 between the Registrant and Peter Hanley. *10.63(9) Offer Letter Agreement dated November 1, 1993 between Registrant and Richard S. Hill. *10.64(8) Promissory Note secured by Deed of Trust between Registrant and Daniel Queyssac secured by property located at 6051 Reston Road, Care Creek, Arizona. 20 property located at 6051 Reston Road, Care Creek, Arizona. 13.1 Registrant's 1995 Annual Report to Shareholders (only portions of this document specifically incorporated herein by reference are included in this exhibit). 22.1 Subsidiaries of Registrant. 23.1 Consent of Ernst & Young, LLP, Independent Auditors. 25.1 Powers of Attorney (see page 22). ___________ (1) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-23011, which was declared effective August 11, 1988. (2) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (3) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-28108, which was declared effective May 2, 1989. (4) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1990. (5) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-37607, which was declared effective November 19, 1990. (6) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 1991. (7) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1992. (8) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993. (9) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 1994. (10) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 1995. * Management contracts or compensatory plans or arrangements. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in San Jose, California on the 13th day of March, 1996. NOVELLUS SYSTEMS, INC. By: /s/William J. Wall ------------------------------------- William J. Wall VICE PRESIDENT, FINANCE AND ADMINISTRATION, CHIEF FINANCIAL OFFICER AND SECRETARY POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard S. Hill and William J. Wall, and each of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE CAPACITY DATE --------- -------- ---- /s/Richard S. Hill President, Chief Executive Officer March 13, 1996 - ---------------------- and Director (Principal Executive Richard S. Hill Officer) /s/William J. Wall Vice President, Finance and March 13, 1996 - ---------------------- Administration, Chief Financial William J. Wall Officer and Secretary (Principal Financial and Accounting Officer) /s/Robert F. Graham Chairman of the Board of Directors March 13, 1996 - ---------------------- Robert F. Graham Director March , 1996 - ---------------------- D. James Guzy /s/Tom Long Director March 13, 1996 - ---------------------- Tom Long 22 /s/Glen Possley Director March 13, 1996 - ---------------------- Glen Possley /s/Robert H. Smith Director March 13, 1996 - ---------------------- Robert H. Smith /s/Joseph Van Poppelen Director March 13, 1996 - ---------------------- Joseph Van Poppelen 23 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS ($ IN THOUSANDS)
Description Balance at Charged Deductions(1) Balance at - ----------- Beginning to Costs ------------- End of of Period and Period --------- Expenses --------- -------- Year Ended December 31, 1993 Allowance for Doubtful Accounts $ 740 $ 178 $ 119 $ 799 Year Ended December 31, 1994 Allowance for Doubtful Accounts 799 1,097 135 1,761 Year Ended December 31, 1995 Allowance for Doubtful Accounts 1,761 495 60 2,196 _______________
(1) Charges for uncollectable accounts 24 INDEX TO EXHIBITS EXHIBIT NUMBER DOCUMENT SEQUENTIALLY - -------------- -------- NUMBERED PAGE ------------- 3.1 (5) Amended and Restated Articles of Incorporation of Registrant. . . . . . . . . . . . . . . . . . . . 3.2 (1) Form of Bylaws of Registrant, as amended to date. . . . . . . . . . . . . . . . . . . . . . . 4.1 (1) Registration Rights Agreement dated December 21, 1987 between Registrant, holders of Series A Preferred Stock, Series B Preferred Stock, Series D Preferred Stock, Warrants to purchase Series B and Series C Preferred Stock and Robert F. Graham, and amendment thereto. . . . . 10.1 (8) Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. . . . . . . . . . . . . . . 10.2 (9) First Amendment dated May 1, 1993 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. . . . . . . . . . . . . . . . . . . . . 10.3 (10) Second Amendment dated April 30, 1994 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. . . . . . . . . . . . . . . . . . . . . 10.4 Third Amendment dated April 28, 1995 to Credit Agreement dated June 23, 1992 between Registrant and Bank of America National Trust and Savings Association. . . . . . . . . . . . . . . . . . . . . 10.5 (9) Credit Agreement dated April 30, 1993 between Registrant and Sanwa Bank of California, as amended August 19, 1993. . . . . . . . . . . . . . . 10.6 (9) Guaranty dated November 29, 1993 between Registrant and The Sanwa Bank Ltd. . . . . . . . . . . . . . . 10.7 (10) Line of Credit Agreement dated June 13, 1994 between Registrant and Sanwa Bank of California. . . 10.8 Amendment dated May 2, 1995 of Commercial Credit Agreement dated June 13, 1994 between Registrant and Sanwa Bank of California.. . . . . . . . . . . . 10.9 (5) Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank.. . . . . 10.10(7) Change in Terms Agreement dated September 23, 1991 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank. . . . . . . . . . . . . . . . . 10.11 (8) Change in Terms Agreement dated July 29, 1992 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank.. . . . . 10.12(9) Change in Terms Agreement dated May 12, 1993 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank.. . . . . 10.13(9) Modification dated May 12, 1993 to Business Loan Agreement dated August 2, 1990 between Registrant and Silicon Valley Bank, as amended September 23, 1991 and July 29, 1992.. . . . . . . . 10.14(10) Loan Modification Agreement dated July 15, 1995 between Registrant and Silicon Valley Bank.. . . . . 25 INDEX TO EXHIBITS EXHIBIT NUMBER DOCUMENT SEQUENTIALLY - -------------- -------- NUMBERED PAGE ------------- 10.15(9) Commercial Guaranty dated May 12, 1993 between the Registrant, Silicon Valley Bank and Individual Employees of Novellus Systems, Inc.. . . . . . . . . 10.16(7) Loan and Guaranty Agreement dated November 29, 1991 between Registrant and The Japan Development Bank. . 10.17 Commercial Loan Agreement dated November 15, 1995 between Registrant and Sumitomo Bank of California . 10.18 Guarantee dated August 31, 1995 between Registrant and The Mitsubishi Bank, Limited . . . . . . . . . . 10.19(5) Commercial Lease dated October 19, 1990 between Registrant and Sobrato Development Companies #871, concerning property located at 81 Vista Montana, San Jose, California.. . . . . . . . . . . . . . . . 10.20(1) Commercial Lease dated March 11, 1987 between Registrant and California Second, Ltd., concerning property located at 3950 North First Street, San Jose, California.. . . . . . . . . . . . . . . . 10.21(3) First Amendment dated February 8, 1989 to Commercial Lease dated March 11, 1987 between Registrant and California Second Ltd., concerning property located at 3950 North First Street, San Jose, California.. . . . . . . . . . . . . . . . 10.22 Lease dated September 26, 1995 between Registrant and W. F. Batton & Co., Inc. concerning property located at 3590 North First Street, San Jose, California.. . . . . . . . . . . . . . . . . . . . . 10.23(10) Standard Sublease dated April 28, 1994 between Registrant and Granada Computer Services, Inc., concerning property located 3940 North First Street, San Jose, California.. . . . . . . . . . . . 10.24 Sublease Agreement dated January 13, 1995 between Registrant and LTX Corporation concerning property located at 3970 North First Street, San Jose, California.. . . . . . . . . 10.25 Assignment and Assumption of Lease dated November 22, 1995 among Registrant, Circadian, Incorporated (Assignor) and California Second, Ltd. (Landlord) concerning property located at 3942 North First Street, San Jose, California . . . . . . . . . . . . . . . . 10.26 Lease Agreement dated January 11, 1996 between Registrant and South Bay/Fortran concerning property located at 4415 Fortran Court, San Jose, California.. . . . . . . . . . . . . . . . . . 10.27(1) Commercial Lease dated May 2, 1988 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas.. . . . . . . . . . . 10.28(6) Amendment dated March 27, 1990 to Commercial Lease dated May 2, 1988 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas.. . . . . . . . . . . . . . 10.29(9) Amendment dated March 29, 1993 to Lease dated May 2, 1993 between Registrant and Aetna Life Insurance Company, concerning property located at 12820 Hillcrest Road, Suite 122, Dallas, Texas. . 10.30(10) Standard Office Building Lease Agreement dated August 15, 1994 between Registrant and Aetna Life Insurance Company concerning 26 INDEX TO EXHIBITS EXHIBIT NUMBER DOCUMENT SEQUENTIALLY - -------------- -------- NUMBERED PAGE ------------- property located at 12840 Hillcrest Road, Suite 104, Dallas, Texas. . . . . . . . . . . . . . . . . . . . 10.31(6) Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont.. . . . . . . . . . . 10.32(7) Amendment dated May 23, 1991 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont.. . . . . . . . . . . . . . . . . 10.33(9) Letter Extension dated October 25, 1993 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont.. . . . . . . . . . . . . . . . . 10.34 Addendum dated August 10, 1995 to Lease Agreement dated May 1, 1990 between Registrant and East Williston Road Associates, concerning property located at One Blair Park, Blair Park, Williston, Vermont.. . . . . . . . . . . . . . . . . 10.35(7) Office Lease dated July 1, 1991 between Registrant and Ray Prather, concerning property located at 4090 W. State Street, Boise, Idaho.. . . . . . . . . 10.36(8) Office Lease dated January 29, 1992 between Registrant and Alan Arkawy, concerning property located at 1123 Route 52, Fishkill, New York.. . . . 10.37 Lease dated August 14, 1995 between Registrant and East Fishkill Corporate Park Investments concerning property located at 25 Corporate Park Drive, Route 52, East Fishkill, New York. . . . 10.38(7) Commercial Lease dated February 1, 1991 between Registrant (Nippon Novellus Systems, K.K.) and Tenko, K.K., concerning property located at 1-12-3 Kamitsuruma, Sagimihara City, Kanagawa Prefecture, Japan.. . . . . . . . . . . . . 10.39(8) Commercial Lease dated June 15, 1992 between Registrant (Novellus Systems, Ltd.) and Exploitatiemaatschappij Dillenberg B.V., concerning property located at Dillenburgstraat 5-B Eindhoven, The Netherlands.. . . . . . . . . . . 10.40(8) Commercial Lease dated March 26, 1992 between Registrant (Novellus Systems, Ltd.) and W.B. Properties Ltd., concerning property located at 1 to 5 Pyrford Road, West End Garage, West Byfleet, Surrey, United Kingdom.. . . . . . . . 10.41(9) Lease dated August 17, 1993 between Registrant and OTR, acting as the duly authorized nominee of the Board of State Teachers Retirement System of Ohio, concerning property located at 1701 Directors Boulevard, Austin, Texas. . . . . . . 10.42 Lease Agreement dated May 26, 1995 between Registrant and OTR, acting as the duly authorized nominee of the Board of State Teachers Retirement System of Ohio, concerning property located at 1701 Directors Boulevard, Austin, Texas. . . . . . . 10.43(9) Lease dated November 2, 1993 between Registrant and Arnbil Associates, concerning property located at 5 Mount Royal Avenue, 27 INDEX TO EXHIBITS EXHIBIT NUMBER DOCUMENT SEQUENTIALLY - -------------- -------- NUMBERED PAGE ------------- Marlborough, Massachusetts.. . . . . . . . . . . . . 10.44(9) Lease dated November 4, 1993 between Registrant and Canterbury Associates, concerning property located at 19 Walnut Hill Road, Poughkeepsie, New York.. . . . . . . . . . . . . . . . . . . . . . 10.45(9) Lease dated November 17, 1992 between Registrant and Aetna Casualty and Surety Company, concerning property located at Two Gateway, Suite 420, Phoenix, Arizona.. . . . . . . . . . . . . . . . . . 10.46(9) First Amendment dated November 30, 1993 to Lease dated November 17, 1992 between Registrant and Aetna Casualty and Surety Company, concerning property located at Two Gateway, Suite 420, Phoenix, Arizona.. . . . . . . . . . . . . . . . . . 10.47(9) Lease dated April 25, 1990 between Registrant and Korea Women's Missionary Union.. . . . . . . . . 10.48 Office Rental Contract dated November 28, 1994 between Registrant (Novellus Systems Korea Co., Ltd.) and Suh Won Building Management Company concerning property located at 57 Garak-Dong Songpa-Gu, Seoul, Korea.. . . . . . . . . . . . . . . . . . . . 10.49 Sublease executed February 2, 1995 between Registrant (Novellus Systems, Ltd.) and Leyland DAF Finance PLC with the consent of Central Regional Council concerning property located at the Upper Ground Floor (East Wing), The Forum, Callendar Business Park, Falkirk, Scotland.. . . . . . . . . . 10.50 Commercial Lease Agreement dated February 1, 1996 between Registrant and Faison & Associates, Inc. d/b/a Southland Management Company, not individually, but solely as Management and Leasing Broker for Plaza Central I concerning property located at 6220 S. Orange Blossom Trail, Suite 186, Orlando, Florida.. . . . . . . . . . . . . . . . . . 10.51 Office Lease dated March 20, 1995 between Registrant and Hartford Underwriters Insurance Company concerning property located at 15350 North West Greenbrier Parkway, Suite B-340, Beaverton, Oregon. . . . . . . . . . . . . . . . . . 10.52 Lease dated February 15, 1995 between Registrant (Novellus Systems Taiwan) and Mr. Woo-Shung Lin and Mr. Wing-Yee Lee concerning property located at 5F-1, No. 295, Sec. 2, Kwang Fu Road, Hsinchu, Taiwan R.O.C. (English translation of original exhibit in the Chinese language).. . . . 10.53(2) Equipment Lease dated March 28, 1989 between Registrant and Matsco Leasing Company. . . . . . . . 10.54(7) Distribution Agreement dated April 1, 1991 between Registrant and Seki Technotron Corporation.. 10.55(9) First Amendment dated January 1, 1993 to Distribution Agreement dated April 1, 1991 between the Registrant and Seki Technotron Corporation. . . . . . . . . . . 10.56 Distribution Agreement dated January 1, 1996 between Registrant and Seki Technotron Corporation.. . . . . *10.57(7) Registrant's Amended and Restated 1984 Stock Option Plan, together with forms of agreements thereunder.. *10.58(9) Registrant's 1992 Stock Option Plan, together with forms of agreements thereunder.. . . . . . . . . . . 28 INDEX TO EXHIBITS EXHIBIT NUMBER DOCUMENT SEQUENTIALLY - -------------- -------- NUMBERED PAGE ------------- *10.59(8) Registrant's 1992 Employee Stock Purchase Plan.. . . *10.60(1) Form of Agent Indemnification Agreement and amendment thereto. . . . . . . . . . . . . . . . . . . . . . . *10.61(4) Employment Agreement dated June 1, 1989 between Registrant and Evert van de Ven. . . . . . . . . . . *10.62(8) Employment Agreement dated as of June 15, 1992 between the Registrant and Peter Hanley. . . . . . . *10.63(9) Offer Letter Agreement dated November 1, 1993 between Registrant and Richard S. Hill.. . . . . . . *10.64(8) Promissory Note secured by Deed of Trust between Registrant and Daniel Queyssac secured by property located at 6051 Reston Road, Care Creek, Arizona.. . 13.1 Registrant's 1995 Annual Report to Shareholders (only portions of this document specifically incorporated herein by reference are included in this exhibit). . . . . . . . . . . . . . . . . . . . 22.1 Subsidiaries of Registrant.. . . . . . . . . . . . . 23.1 Consent of Ernst & Young, LLP, Independent Auditors. 25.1 Powers of Attorney (see page 22).. . . . . . . . . . ___________ (1) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-23011, which was declared effective August 11, 1988. (2) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (3) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-28108, which was declared effective May 2, 1989. (4) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1990. (5) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1, File No. 33-37607, which was declared effective November 19, 1990. (6) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 1991. (7) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1992. (8) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 1993. 29 (9) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 1994. (10) Incorporated by reference to the exhibit filed with Registrant's Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 1995. * Management contracts or compensatory plans or arrangements. 30 EX-10.4 2 EXHIBIT 10.4 THIRD AMENDMENT TO CREDIT AGREEMENT This THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment"), dated as of April 28, 1995, is entered into by and between NOVELLUS SYSTEMS, INC. ("Borrower") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank"). RECITALS A. The Bank and the Borrower are parties to a Credit Agreement dated as of June 23, 1992, as amended by a First Amendment to Credit Agreement dated May 1, 1993, and as amended by a Second Amendment to Credit Agreement dated April 30, 1994 (the "Credit Agreement"), pursuant to which the Bank has extended certain credit facilities to the Borrower and its subsidiaries. B. The Borrower has requested that the Bank agree to certain amendments to the Credit Agreement. C. The Bank is willing to amend the Credit Agreement, subject to the terms and conditions of this Third Amendment. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower mutually agree to amend said Credit Agreement as follows: 1. DEFINED TERMS. Unless other wise defined herein, capitalized terms used herein shall have meanings, if any, assigned to them in the Credit Agreement. 2. AMENDMENTS TO CREDIT AGREEMENT. (a) Paragraph 1.1 of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996". (b) Paragraph 1.2 (a) of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996". (c) Paragraph 1.3 (f) of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996". 1 (d) Paragraph 1.4 (f) of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996". (e) Paragraph 1.5 (c)(i) of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996". (f) Paragraph 1.6 (b)(i) of the Credit Agreement is hereby amended by replacing the phrase "October 31, 1995" with the phrase "October 31, 1996". (g) Paragraph 1.7 (b)(i) of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1996" with the phrase "April 30, 1997". (h) Paragraph 1.10 of the Credit Agreement is hereby amended by replacing the phrase "April 30, 1995" with the phrase "April 30, 1996" in all three places. 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Bank as follows: (a) No Event of Default or event which with the giving of notice, the lapse of time, or both, would be an Event of Default, has occurred and is continuing. (b) The execution, delivery, and performance by the Borrower of this Third Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any person (including any governmental agency) in order to be effective and enforceable. The Credit Agreement as amended by this Third Amendment constitutes the legal, valid, and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms, without defense, counterclaim or offset. (c) All representations and warranties of the Borrower contained in the Credit Agreement are true and correct. (d) The Borrower is entering into this Third Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other person. 4. EFFECTIVE DATE. This Third Amendment will become effective on April 28, 1995 (the "EFFECTIVE DATE") PROVIDED that each of the following conditions precedent has been satisfied: (a) The Bank has received from the Borrower a duly executed original of this Third Amendment. 2 (b) The Bank has received from the Borrower a copy of a resolution passed by the board of directors of the Borrower, certified by the Secretary or Assistant Secretary of the Borrower as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment. (c) Borrower has paid Bank a non-refundable facility fee of Five Thousand U.S. Dollars (U.S.$5,000), calculated at the rate of one quarter of one percent (.25%) on Two Million U.S. Dollars (U.S.$2,000,000). 5. RESERVATION OF RIGHTS. The Borrower acknowledges and agrees that the execution and delivery by the Bank of this Third Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to execute similar amendments under the same or similar circumstances in the future. 6. MISCELLANEOUS. (a) Except as herein expressly amended, all terms, covenants, and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Third Amendment. This Third Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Third Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Third Amendment. (c) This Third Amendment shall be governed by and construed in accordance with the law of the State of California (without regard to principles of conflicts of laws). (d) This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. (e) This Amendment may not be amended except in writing executed by the Borrower and the Bank. (f) If any term or provision of this Third Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Third Amendment or the Credit Agreement, respectively. (g) Borrower covenants to pay to or reimburse the Bank, upon demand, all cost and expenses (including allocated cost of in-house counsel) incurred in 3 connection with the development, preparation, negotiation, execution and delivery of this Third Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Third Amendment as of the date first above written. Bank of America National Trust Novellus Systems, Inc. and Savings Association By: /s/ Stephen L. Parry By: /s/ W. J. Wall -------------------------------- --------------------------------- Stephen L. Parry Vice President Title: Vice President and Chief Financial Officer -------------------------------- By: /s/ John P. Root ----------------------------------- Title: Product Line Financial Manager -------------------------------- 4 EX-10.8 3 EXHIBIT 10.8 [Logo] AMENDMENT OF COMMERCIAL CREDIT AGREEMENT This Amendment of Commercial Credit Agreement ("Amendment") is made and entered into this 2nd day of May 1995 by and between SANWA BANK CALIFORNIA (the "Bank") and NOVELLUS SYSTEMS, INC. (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain commercial credit agreement between the parties hereto and dated as of June 13, 1994, as it may have been or be amended from time to time, and any and all addenda, riders, exhibits and schedules therto (collectively, the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. EXTENSION OF EXPIRATION DATE OF THE LINE OF CREDIT FACILITY. The Expiration Date of the Line of Credit Facility contained in the Agreement, which is currently April 30, 1995, shall be modified and extended to be April 30, 1997. 2. REVISED REPAYMENT OF PRINCIPAL. The first sentence contained in Section 2.02.D of the Agreement is modified and amended to read as follow: Unless sooner due in accordance with the terms of this Agreement, on April 30, 1997 the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal balance of all Advances then outstanding, together with all accrued and unpaid interest thereon. 3. EXTENSION OF EXPIRATION OF THE LETTER OF CREDIT FACILITY. The Expiration of the Letter of Credit Facility contained in the Agreement which is currently April 30, 1995, shall be modified and extended to be April 30, 1997 and no Letter of Credit shall expire on a date which is 90 days after such date. 4. REVISED DEBT TO NET WORTH RATIO. Section 5.11 (ii) of the Agreement is modified and amended to read as follows: A debt to effective tangible net worth ratio of not more than .50 to 1.00. 5. REVISED EFFECTIVE TANGIBLE NET WORTH. Section 5.11 (iii) of the Agreement is modified and amended to read as follows: A minimum effective tangible net worth of not less then $175,000,000.00. 6. INCORPORATION INTO AGREEMENT. On and after the effective date of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Agreement shall mean and be referenced to the Agreement as amended by this Amendment. 7. NO WAIVER. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Bank under, the Agreement. 8. CONFIRMATION OF OTHER TERMS AND CONDITIONS. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement which are unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA NOVELLUS SYSTEMS, INC. BY: /s/ Jullian Matthew BY: /s/ William J. Wall -------------------------------- ------------------------------------- NAME/TITLE WILLIAM J. WALL, VICE PRESIDENT BY: /s/ John P. Root ------------------------------------- JOHN P. ROOT, TREASURER (1) EX-10.17 4 EXHIBIT 10.17 COMMERCIAL LOAN AGREEMENT This Commercial Loan Agreement dated as of November 15, 1995 ("Agreement") is between Sumitomo Bank of California ("Bank") and Novellus Systems, Inc. ("Borrower"). 1. LINE OF CREDIT, AMOUNT AND TERMS Bank agrees to make available to Borrower a line of credit on the following terms, covenants and conditions: 1.1 LINE OF CREDIT AMOUNT. Unsecured Line of Credit. During the Availability Period, Bank will provide an Unsecured Line of Credit to Borrower. The maximum amount of this Line of Credit (the "Commitment") is One Million Dollars ($1,000,000). Borrower's obligation to repay this Unsecured Line of Credit is evidenced by a promissory note substantially in the form of Exhibit A attached hereto (the "Unsecured Line Note"). (a) MAXIMUM LOAN BALANCE. Borrower agrees not to permit the outstanding principal balance of the Unsecured Line of Credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, and any amounts outstanding under obligations to Bank of third parties which are guaranteed by Borrower (such sum is the "Loan Balance") to exceed the Commitment. 1.2 AVAILABILITY PERIOD. The period under which Borrower may draw on the Unsecured Line of Credit ("Availability Period") is between the date of this Agreement and June 30, 1996 (the "Maturity Date") unless Borrower is in default, in which event Bank need not make any advances. 1.3 INTEREST RATE. (a) Unless Borrower elects an Offshore Rate based Interest Rate as described below, the interest rate is Bank's Prime Rate in effect from time to time. (b) The "Prime Rate" equals the rate of interest set from time to time by Bank as its head office in San Francisco, California as its Prime Rate. The Prime Rate is determined by 1 Bank as a means of pricing credit extensions to some customers and is neither tied to any external rate of interest or index nor is it necessarily the lowest rate of interest charged by Bank at any given time for any particular class of customers or credit extensions. Any changes in the interest rate resulting from a change in the Prime Rate shall take effect without notice on the date specified at the time the Prime Rate is set. (c) OFFSHORE RATE/RATE PLUS DISCLOSED SPREAD. Borrower may elect to have all or portions of the principal balance of the Unsecured Line of Credit bear interest at the Offshore Rate plus One and Three Fourths percent (1.75%). Designation of an Offshore Rate portion is subject to the following requirements: (i) The interest period during which the Offshore Rate will be in effect will be no shorter than 30 days and no longer than 180 days as selected by Borrower with consent of Bank. The last day of the interest period will be determined by Bank using the practices of the offshore dollar inter-bank market. (ii) Each Offshore Rate portion will be for an amount not less than One Million dollars ($1,000,000). (iii) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. All amounts in the calculation will be determined by Bank as of the first day of interest period. Offshore Rate = Eurodollar Rate --------------- (1.00 - Reserve Percentage) Where, (A) "Eurodollar Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which bank's Grand Cayman Branch would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. 2 (B) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (iv) Borrower may not elect an Offshore Rate with respect to any portion of the principal balance of the Unsecured Line of Credit which is scheduled to be repaid before the last day of the applicable interest period. (v) No portion of the principal balance of the line of credit already bearing interest at the Offshore Rate may be converted to a different rate during its interest period. (vi) Each prepayment of an Offshore Rate option, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (A) the additional interest which would have been payable on the amount prepaid had it not been paid until the last day of the interest period, exceeds (B) the interest which would have been recoverable by Bank by placing the amount prepaid on the deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion. (vii) Bank will have no obligation to accept an election of an Offshore Rate portion if any of the following described events has occurred and is continuing: (x) Dollar deposits in the principal amount, and for periods equal to the interest 3 period, of an Offshore Rate portion are not available in the offshore Dollar interbank market; or (y) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 1.4 REPAYMENT TERMS/UNSECURED LINE OF CREDIT. (a) Borrower will pay interest in arrears commencing on December 1, 1995, and then on each first day of each month thereafter until payment in full of all amounts outstanding under the Unsecured Line of Credit. (b) Borrower will repay in full, all principal, interest and other charges outstanding under the Unsecured Line of Credit no later than the Maturity Date. (c) Subject to provisions contained elsewhere herein, Borrower may prepay the Unsecured Line of Credit in full or in part at any time. The prepayment will be applied first to interest and charges and then to the most remote installment of principal due under this Agreement. 1.5 LETTER OF CREDIT LINE. This Line of Credit may be used for financing: (i) commercial letters of credit with a maximum maturity of 360 days but not to extend beyond the Maturity Date. Each commercial letter of credit will require drafts payable at sight or up to 180 days after sight. (ii) standby letters of credit with a maximum maturity of 360 days but not to extend beyond the Maturity Date. (a) The amount of outstanding letters of credit, including amounts drawn on letters of credit and not yet reimbursed, may not exceed at any one time the Commitment. (b) Any sum drawn under a letter of credit may, at the option of Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. 4 (c) In the event any letters of credit are outstanding on the Maturity Date, or in the event an Event of Default shall have occurred, Borrower shall immediately prepay such letters of credit and deposit with Bank, as cash collateral for the obligations of Borrower under such letters of credit (and Borrower hereby grants to Bank a security interest in such cash collateral), an amount equal to the face amount of all outstanding letters of credit, to be applied to repay draws under letters of credit as and when made. (d) The issuance of any letter of credit or any amendment to a letter of credit is subject to Bank's written approval and must be in form and content satisfactory to Bank and in favor of a beneficiary acceptable to Bank. (e) Borrower will sign Bank's form Application and Security Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit. (f) Borrower agrees that Bank may automatically charge its checking account for applicable fees, discounts, and other charges relating to any letters of credit. (g) Borrower will pay Bank a non-refundable fee equal to 1.0% per annum of the outstanding undrawn amount of each standby letter of credit, payable in advance, calculated on the basis of the face amount outstanding on the day the fee is calculated. Standby letters of credit issued for the purpose of allowing Borrower to borrow local currencies from Sumitomo Bank Limited will carry an issuance fee equal to .5% per annum. (h) Borrower will pay any issuance and/or other fees that Bank notifies Borrower will be charged for issuing and processing letters of credit for Borrower. 5 2. FEES AND EXPENSES 2.1 FEES. (a) LOAN FEE. Borrower agrees to pay a Two Thousand Five Hundred Dollar ($2,500) loan fee due on Closing. 2.2 EXPENSES. (a) Borrower agrees to immediately repay Bank for expenses that include, without limitation, filing, recording and search fees, appraisal fees, title report fees, and documentation fees. (b) Borrower agrees to reimburse Bank for any expenses it incurs in the negotiation and preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of Bank's in-house counsel. 3. DISBURSEMENTS, PAYMENTS AND COSTS 3.1 REQUEST FOR CREDIT. Each request for an extension of credit will be made in writing in a manner acceptable to Bank, or by another means acceptable to Bank. 3.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by Bank and each payment by Borrower will be: (a) made at Bank's branch (or other location) selected by Bank from time to time. (b) made for the account of Bank's branch selected by Bank from time to time. (c) made in immediately available funds, or such other type of funds selected by Bank. (d) evidenced by records kept by Bank. In addition, Bank may, at its discretion, require Borrower to sign one or more promissory notes. 6 3.3 TELEPHONE AUTHORIZATION. (a) Bank may honor telephone instructions for advances or repayments or for the designation of optional interest rates given by any officer of Borrower or a person or persons so authorized by any officer of Borrower. (b) Advances will be deposited in, and repayments will be withdrawn from, Borrower's account number 019-001809-70, or such other accounts with Bank as designated in writing by Borrower. (c) Borrower indemnities and holds harmless Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone instructions it reasonably believes are made by an officer of Borrower or a person authorized by an officer of Borrower. This indemnity and agreement to hold harmless will survive this Agreement's termination. 3.4 DIRECT DEBIT (a) Borrower agrees that interest, principal payments and any fees will be deducted automatically on the due date from Borrower's checking account number 019-001809-70. (b) Bank will debit Borrower's account on the dates the payments become due. If a due date does not fall on a banking day, Bank will debit the account on the first Banking Day following the due date. (c) Borrower will maintain sufficient funds in the account on the dates Bank enters debits authorized by this Agreement. If there are insufficient funds in the account on the date Bank enters any debit authorized by this Agreement Borrower shall immediately pay such shortfall to Bank. 3.5 BANKING DAYS. Unless otherwise provided in this Agreement, a "Banking Day" is a day other than a Saturday or a Sunday, on which Bank is open for business in California. For amounts bearing interest at an Offshore Rate (if any), a Banking Day is a day other than a Saturday or a Sunday on which Bank is open for business in California and dealing in offshore dollars. 7 All payments and disbursements which would be due on a day which is not a Banking Day will be due on the next Banking Day. All payments received on a day which is not a Banking Day will be applied to the applicable Line of Credit on the next Banking Day. 3.6 TAXES. Borrower will not deduct any taxes from any payments made to Bank. If any government authority imposes any taxes or charges on any payments to Borrower, Borrower will pay the taxes or charges. Upon request by Bank, Borrower will confirm that it has paid the taxes by giving Bank official tax receipts (or notarized copies) within 30 days after the due date. 3.7 ADDITIONAL COSTS. Borrower will pay Bank, on demand, for Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to Bank. The costs and losses will be allocated to the loans in a manner determined by Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to Bank's assets and commitments for credit. 3.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 3.9 INTEREST ON LATE PAYMENTS. At Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date at Bank's Prime Rate plus Two percent (2.0%). This may result in compounding of interest. 3.10 DEFAULT RATE. If any amount under this Agreement is not paid in full when due at maturity or when due because of the exercise of an option by Bank, Borrower agrees to pay interest on the outstanding principal and interest at the rate of interest otherwise provided under this Agreement plus Two percent (2.0%). 8 3.11 OVERDRAFTS. At Bank's sole option in each instance, Bank may make advances under this Agreement to prevent or cover an overdraft on any account of Borrower with Bank. Each such advance will accrue interest from the date of the advance or the date on which the account is overdrawn, whichever occurs first, at the interest rate described in this Agreement. 4. CONDITIONS 4.1 INITIAL ADVANCE. Bank must have received the following items, in form and content acceptable to Bank, before it is required to extend any credit to Borrower under this Agreement: (a) AUTHORIZATIONS. Evidence that the execution, delivery and performance by Borrower of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. (b) NOTES. The fully executed Unsecured Note. (c) GOOD STANDING. Certificates of good standing for Borrower from its state of incorporation and from any other state in which Borrower is required to qualify to conduct its business. 4.2 CONDITIONS TO EACH ADVANCE. Before each extension of credit, including the first: (a) The Representations and Warranties hereunder must be true and correct. 5. REPRESENTATIONS AND WARRANTIES When Borrower signs this Agreement, and until Bank is repaid in full, Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewed representation. 5.1 ORGANIZATION OF BORROWER. Borrower is a corporation duly formed and existing under the laws of the state where organized. 5.2 AUTHORIZATION. This Agreement, and any instrument or agreement required hereunder, are within Borrower's powers, 9 have been duly authorized, and do not conflict with any of its organizational papers. 5.3 ENFORCEABLE AGREEMENT. This Agreement and any related loan documents, are legal, valid and binding agreements of Borrower, enforceable against Borrower in accordance with their terms, and any instrument or agreement required hereunder or thereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 5.4 GOOD STANDING. In each state in which Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. 5.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or obligation by which Borrower is bound. 5.6 FINANCIAL INFORMATION. All financial and other information that has been or will be supplied to Bank, including Borrower's financial statement dated as of March 31, 1995, is: (a) sufficiently complete to give Bank accurate knowledge of Borrower's financial condition. (b) in form and content required by Bank. (c) in compliance with all government regulations that apply. Since the dates of the financial statements specified above, there has been no material adverse change in the assets or the financial condition of Borrower. 5.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or threatened against Borrower except as has been disclosed in writing to Bank prior to the date hereof. 5.8 PERMITS, FRANCHISES. Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged without conflict with the rights of others. 5.9 OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or 10 any other material lease, commitment, contract, instrument or obligation. 5.10 INCOME TAX RETURNS. Borrower has filed all required tax returns and has no knowledge of any pending assessments or adjustments of its income tax for any year. 5.11 NO EVENT OF DEFAULT. No event has occurred which is, or with notice or lapse of time or both would be, an Event of Default under this Agreement. 5.12 ERISA PLANS. (a) Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (c) No action by Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA means the Employee Retirement Income Act of 1974, as amended from time to time. 11 (iii) "PBGC means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. (iv) "Plan" means any employee pension benefit plan maintained or contributed to by Borrower and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. 6. COVENANTS Borrower agrees, so long as credit is available under this Agreement and until Bank is repaid in full: 6.1 USE OF PROCEEDS. To use the proceeds of the Unsecured Line of Credit only for corporate purposes, including the guaranty of employee loans at the Bank. 6.2 FINANCIAL INFORMATION. To provide the following financial information and statements and such additional information as requested by Bank from time to time: (a) Within 90 days of Borrower's fiscal year end, Borrower's annual financial statements. These financial statements must be audited by a Certified Public Accountant ("CPA") acceptable to Bank. The statements shall be prepared on a consolidated basis. (b) Within 45 days of the period's end, Borrower's quarterly financial statements. These financial statements may be Borrower prepared. The statements shall be prepared on a consolidated basis. (c) Copies of Borrower's Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report within 15 days after the date of filing with the Securities and Exchange Commission. 6.3 OUICK RATIO. To maintain on a consolidated basis as of the last day of each fiscal quarter, a ratio of quick assets to current liabilities of at least 1.5:1.0. "Quick assets" means cash, short-term cash investments, net trade receivables and marketable securities not classified as long-term investments. 12 6.4 TANGIBLE NET WORTH. To maintain on a consolidated basis, as of the last day of each fiscal quarter, Tangible Net Worth equal to at least $220,000,000. "Tangible Net Worth" means the gross book value of Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles and monies due from affiliates, officers, directors or shareholders of Borrower) plus debt subordinated to Bank in a manner acceptable to Bank less total liabilities, including, without limitation, accrued and deferred income taxes, and any reserves against assets. 6.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain on a consolidated basis, as of the last of each fiscal quarter, a ratio of Total Liabilities not subordinated to Tangible Net Worth not exceeding .5:1.0. "Total Liabilities not subordinated" means the sum of current liabilities plus long term liabilities, excluding debt subordinated to Borrower's obligations to Bank in a manner acceptable to Bank. 6.6 PROFITABILITY. To maintain on a consolidated basis, a positive net income before taxes and extraordinary items and a positive net income after taxes and extraordinary items for each fiscal year 6.7 OTHER DEBTS. Not to have outstanding or incur any direct or contingent debts or lease obligations (other than those to Bank), or become liable for the debts of others without Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Unsecured debts and lines of credit in existence on the date of this Agreement disclosed in 13 writing to Bank prior to the date of this Agreement in Borrower's financial statement dated March 31, 1995. (e) Additional unsecured lines of credit with other banks and financial institutions not exceeding, in the aggregate, $20,000,000. 6.8 OTHER LIENS. Not to create, assume, or allow any security interest or lien (including judicial liens) on property Borrower now or later owns, except: (a) Liens or security interests in favor of Bank. (b) Liens for taxes not yet due. 6.9 NOTICES TO BANK. To promptly notify Bank in writing of: (a) any lawsuit over One Million dollars ($1,000,000) against Borrower; (b) any substantial dispute between Borrower and any government authority; (c) any failure to comply with this Agreement; (d) any material adverse change in Borrower's financial condition or operations; (e) any change in Borrower's name, address, or legal structure; and (f) the occurrence of any Event of Default. 6.10 BOOKS AND RECORDS. To maintain adequate books and records. 6.11 COMPLIANCE WITH LAWS. To comply with the laws, regulations, and orders of any government body with authority over Borrower's business (including any fictitious name statute and all statutes regarding the processing, manufacture, storage, transportation, sale or use of hazardous or toxic materials). 14 6.12 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges, and franchises Borrower now has necessary to carry on Borrower's business. 6.13 COOPERATION. To take any action requested by Bank to carry out the intent of this Agreement. 6.14 INSURANCE. (a) General Business Insurance. To maintain insurance as is usual for the business it is in. 6.15 ADDITIONAL NEGATIVE COVENANTS. Not to, without Bank's prior written consent: (a) engage in any business activities substantially different from Borrower's present business. (b) liquidate or dissolve Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination. (d) lease, or dispose of all or a substantial part of Borrower's business or Borrower's assets except in the ordinary course of Borrower's business. 6.l6 ERISA PLANS. To give prompt written notice to Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (b) Any action by Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 15 7. DEFAULT 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) FAILURE TO PAY. Borrower fails to make a payment under this Agreement when due. (b) NON-COMPLIANCE. Borrower fails to meet the conditions of, or fails to perform any obligation under: (i) this Agreement, or (ii) any other agreement made in connection with this Agreement. (c) OTHER DEFAULTS. Any default occurs under any agreement in connection with any credit Borrower has obtained from any other creditor if the default consists of failing to make a payment when due or gives the other creditor the right to accelerate the obligation. (d) FALSE INFORMATION. Any representation or warranty under this Agreement or any agreement, instrument or certificate executed pursuant to this Agreement or in connection with any transaction contemplated hereby shall prove to have been false or misleading in any material respect when made or when deemed to have been made. (e) BANKRUPTCY. Borrower files a bankruptcy petition, a bankruptcy petition is filed against Borrower or Borrower makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy petition filed AGAINST Borrower is dismissed within a period of sixty (60) days after the filing; provided, however, that Bank will not be obligated to extend any additional credit to Borrower during any bankruptcy period. (f) RECEIVERS. A receiver or similar official is appointed for Borrower's business, or the business is terminated. (g) LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors against Borrower in an aggregate amount of Ten Million dollars ($10,000,000) and such 16 lawsuits or lawsuits are not dismissed or fully bonded within ten (10) calendar days after service of process upon Borrower. (h) JUDGMENTS. Any judgments or arbitration awards are entered against Borrower and, absent procurement of a stay of execution, such judgment or award remains unbonded or unsatisfied for ten (10) calendar days after the date of entry; or Borrower enters into any settlement agreement with respect to any litigation or arbitration, in an aggregate amount of Ten Million dollars ($10,000,000) or more in excess of any insurance coverage. (i) GOVERNMENT ACTION. Any government authority takes action that Bank believes adversely affects Borrower's financial condition or ability to repay. (j) MATERIAL ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, properties or prospects, or ability to repay the obligations hereunder. (k) ERISA PLANS. The occurrence of a reportable event with respect to Plan which is, in the reasonable judgment of Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA, or could reasonably be expected, in the judgment of Bank, to subject Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, would have an adverse effect on the financial condition of Borrower with respect to a Plan. 7.2 REMEDIES. Upon and after the occurrence of an Event of Default, Bank shall have all of the following rights and remedies: (a) All obligations and indebtedness hereunder may, at the option of Bank and without demand, notice, or legal process of any kind, be declared, and immediately shall become, due and payable; (b) The Loans shall bear interest at the Default Rate; 7.3 COSTS AND EXPENSES. Upon the occurrence of any Event of Default, Bank shall be entitled to recover all costs, expenses, and attorneys' fees (including any allocated costs of in-house counsel) in connection with the administering or enforcing of this Agreement, whether or not an action is filed. 17 8. MISCELLANEOUS 8.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to Bank and all financial covenants will be made under generally accepted accounting principles consistently applied. 8.2 CALIFORNIA LAW. This Agreement is governed by California law. 8.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on Borrower's and Bank's successors and assignees. Borrower agrees that it may not assign this Agreement without Bank's prior written consent. Bank may sell participations in or assign these loans, or any portion thereof, and may exchange financial information about Borrower with actual or potential participants or assignees. If a participation is sold or any portion of the loans is assigned, the purchaser will have the right of set-off against Borrower. 8.4 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. No failure on the part of Bank to exercise, and no delay in exercising, any right, power, or remedy under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise thereof or the exercise of any other right. Any consent or waiver under this Agreement must be in writing. If Bank waives a default, it may enforce a later default. 8.5 COSTS AND EXPENSES. In addition to the recovery of costs and expenses upon an occurrence of an Event of Default, if Bank incurs expenses in connection with the preparation, administering or enforcing of this Agreement, Borrower shall pay Bank all such costs and reasonable attorneys' fees, including any allocated costs of in-house counsel. 8.6 ENTIRE AGREEMENT. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between Bank and Borrower concerning this credit; and 18 (b) replace any prior oral or written agreements between Bank and Borrower concerning this credit; and (c) are intended by Bank and Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 8.7 NOTICES. Except as otherwise provided herein, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as Bank and Borrower may specify from time to time in writing. 8.8 HEADINGS. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 8.9 COUNTERPARTS. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 8.10 FURTHER ASSURANCES. Borrower shall, at its expense and without expense to Bank, do, execute and deliver such further acts and documents as Bank from time to time reasonably requires for the assuring to Bank the rights created or intended to be created by this Agreement and for carrying out the intention or facilitating the performance of the terms of this Agreement or any document executed in connection with this Agreement. 8.11 HAZARDOUS WASTE INDEMNIFICATION. Borrower will indemnify and hold harmless Bank from loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about Borrower's property or operations or property 19 leased to Borrower. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or "toxic" under any federal, state or local law. This indemnity will survive repayment of Borrower's obligations to Bank. Upon demand by Bank, Borrower will defend any investigation, action or proceeding alleging the presence of any hazardous substance in any such location, which affects any of Borrower's property or operations or property leased to Borrower or which is brought or commenced against Bank, whether alone or together with Borrower or any other person, all at Borrower's own cost and by counsel to be approved by Bank in the exercise of its reasonable judgment. In the alternative, Bank may elect to conduct its own defense at the expense of Borrower. 8.12 WAIVER OF JURY TRIAL. The parties to this Agreement acknowledge that jury trials often entail additional expenses and delays not occasioned by nonjury trials. The parties to this Agreement further agree and stipulate that a fair trial may be had before a state or federal judge by means of a bench trial without a jury. In view of the foregoing, and as a specifically negotiated provision of this Agreement, each party to this Agreement hereby expressly waives any right to trial by jury of any claim, demand, action or cause of action (1) arising under this Agreement or any other instrument, document or agreement executed or delivered in connection herewith, or (2) in any way connected with or related or incidental to the dealings of the parties hereto or any of them with respect to this Agreement or any other instrument, document or agreement executed or delivered in connection herewith, or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether sounding in contract or tort or otherwise; and each party hereby agrees and consents that any such claim, demand, action or cause of action shall be decided by court trial without a jury, and that any party to this Agreement may file an original counterpart or a copy of this section with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury. 20 This Agreement is executed as of the date stated at the top of the first page. NOVELLUS SYSTEMS, INC. By /s/ --------------------------- Its CFO -------------------------- By /s/ John P. Root ----------------------------- Its Product Line Controller -------------------------- Address where notices to Borrower are to be sent: Novellus Systems, Inc. 81 Vista Montana San Jose, CA 95134 Attn: John P. Root SUMITOMO BANK OF CALIFORNIA By /s/ William G. Nelle, Jr. -------------------------------- Its Vice President & Manager ---------------------------- Address where notices to Bank are to be sent: Sumitomo Bank of California 84 West Santa Clara Street, Suite 700 San Jose, California 95113 Attn: W.G. Nelle, Jr. 21 UNSECURED LINE NOTE $1,000,000.00 November 1, 1995 San Jose, California FOR VALUE RECEIVED, the undersigned promises to pay to the order of The Sumitomo Bank of California (the "BANK"), the principal amount of ONE MILLION AND N0/100 DOLLARS ($1,000,000.00) or such lesser aggregate amount of advances under the Revolving Line of Credit as may be made by the Bank pursuant to the Loan Agreement referred to below, together with interest on the principal amount of each advance under the Revolving Line of Credit remaining unpaid from time to time from the date of each such advance under the Revolving Line of Credit until the date of payment in full, payable as hereinafter set forth. Reference is made to the Commercial Loan Agreement dated as of even date herewith, by and between the undersigned, as Borrower, and the Bank (the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is the Unsecured Line Note referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Loan Agreement,among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Unsecured Line Note shall be payable as provided in the Loan Agreement and in any event on June 30,1996. Interest shall be payable on the outstanding daily unpaid principal amount of advances under the Revolving Line of Credit from the date first written above until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Loan Agreement both before and after default and before and after maturity and judgment, with interest on overdue principal and interest to bear interest at the rate set forth in Section 3.10 of the Loan Agreement, to the fullest extent permitted by applicable law. Each payment hereunder shall be made to the Bank in immediately available funds not later than 4:00 p.m. (Los Angeles time) on the day of payment (which must be a Banking Day). All payments received after 4:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed received on the next succeeding Banking Day. All payments shall be made in lawful money of the United States of America. The Bank shall use its best efforts to keep a record of advances under the Revolving Line of Credit made by it and payments received by it with respect to this Unsecured Line Note, and, absent manifest error, such record shall be presumptive evidence of the amounts owing under this Unsecured Line Note. The undersigned hereby promises to pay all costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements (including the allocated costs of in-house counsel), whether or not an action is filed in connection therewith. Subject to the provisions of the Loan Agreement, the undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable laws. This Unsecured Line Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local laws thereof. NOVELLUS SYSTEMS, INC., a California corporation By /s/ William J. Wall ------------------------------------------ William J. Wall, CFO (Printed Name & Title) By /s/ John P. Root ----------------------------------------- John P. Root, Product Line Controller (Printed Name & Title) EXHIBIT A UNSECURED LINE NOTE $1,000,000.00 November 1, 1995 San Jose, California FOR VALUE RECEIVED, the undersigned promises to pay to the order of The Sumitomo Bank of California (the "BANK"), the principal amount of ONE MILLION AND N0/100 DOLLARS ($1,000,000.00) or such lesser aggregate amount of advances under the Revolving Line of Credit as may be made by the Bank pursuant to the Loan Agreement referred to below, together with interest on the principal amount of each advance under the Revolving Line of Credit remaining unpaid from time to time from the date of each such advance under the Revolving Line of Credit until the date of payment in full, payable as hereinafter set forth. Reference is made to the Commercial Loan Agreement dated as of even date herewith, by and between the undersigned, as Borrower, and the Bank (the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is the Unsecured Line Note referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Loan Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Unsecured Line Note shall be payable as provided in the Loan Agreement and in any event on June 30,1996. Interest shall be payable on the outstanding daily unpaid principal amount of advances under the Revolving Line of Credit from the date first written above until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Loan Agreement both before and after default and before and after maturity and judgment, with interest on overdue principal and interest to bear interest at the rate set forth in SECTION 3.10 of the Loan Agreement, to the fullest extent permitted by applicable law. Each payment hereunder shall be made to the Bank in immediately available funds not later than 4:00 p.m. (Los Angeles time) on the day of payment (which must be a Banking Day). All payments received after 4:00 p.m. (Los Angeles time) on any particular Banking Day shall be deemed received on the next succeeding Banking Day. All payments shall be made in lawful money of the United States of America. The Bank shall use its best efforts to keep a record of advances under the Revolving Line of Credit made by it and payments received by it with respect to this Unsecured Line Note, and, absent manifest error, such record shall be presumptive evidence of the amounts owing under this Unsecured Line Note. The undersigned hereby promises to pay all costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements (including the allocated costs of in-house counsel), whether or not an action is filed in connection therewith. Subject to the provisions of the Loan Agreement, the undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable laws. This Unsecured Line Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local laws thereof. NOVELLUS SYSTEMS, INC., a California corporation By----------------------------------- ----------------------------------- (Printed Name & Title) By----------------------------------- ----------------------------------- (Printed Name & Title) MASTER FOREIGN EXCHANGE AGREEMENT Master Foreign Exchange Agreement (the "Agreement") dated as of November 15, 1995, between Novellus Systems, Inc. (the "Customer") and the Sumitomo Bank of California (the "Bank"). 1. Subject to the terms and conditions of this Agreement, the Bank, in its discretion, may enter into spot and forward foreign exchange transactions with Customer requiring the exchange of a specified amount of one currency for a specified amount of a second currency on a specified date, referred to as the settlement date (each, a "foreign exchange transaction"), each foreign exchange transaction to be evidenced by a confirmation sent by Bank and acknowledged by Customer. Customer agrees to pay Bank, on demand, Bank's then standard foreign exchange transaction contract fees for each foreign exchange transaction. 2. The Bank shall enter into transactions with Customer within a Foreign Exchange Line established by the Bank, the aggregate amount payable by one party in any currency not to exceed $5,000,000, although this amount may be increased if both Bank and Customer agree in writing. 3. The maximum amount at any time of the U.S. Dollar equivalent of the sum of Customer's obligation to Bank hereunder shall not exceed $5,000,000 in the aggregate and $2,500,000 for any one settlement date. 4. Neither Customer nor Bank shall be under any obligation to enter into any particular foreign exchange transaction with each other. 5. It shall constitute a "default" hereunder in the event that: (a) Bank or Customer fails to pay any sum due under any transaction or pursuant to this Agreement within two business days of notice of such non-payment; (b) Customer fails to perform or observe any other term, obligation, covenant or undertaking contained hereunder, under any transaction entered into pursuant hereto, or under any other transaction entered into between Customer and Bank, within seven days of notice of such failure to perform or observe; (c) any representations or warranties made or deemed, pursuant to Section 7, to be made by Customer proves to be untrue in any material respect when made or deemed made; (d) Customer files or has filed against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights or has a receiver, administrator, custodian, or similar official appointed for it or substantially all of its assets is the subject of any event that, under applicable law, has an analogous effect to any of the foregoing; or (e) the authority of any investment manager to transact on Customer's behalf hereunder is terminated or limited for any reason or such investment manager is removed or resigns and Customer fails to provide Bank with reasonably contemporaneous notice thereof; 2 then the other of us (referred to as the non-defaulting party) may then, at its option, treat such event or circumstances as an anticipatory breach by the defaulting party of its obligations to the non-defaulting party under the outstanding transactions in compliance with the next paragraph. 6. Upon the closing of Bank and Customer's outstanding transactions hereunder the defaulting party or the non-defaulting party, as the cause may be, shall be obligated to pay to the other with respect to closed-out transactions an amount determined as follows: i) All determinations shall be made in good faith by the non-defaulting party, shall be conclusive absent manifest error as soon as practicable, and the date of determination shall be the "Close-Out Day"; ii) With respect to each outstanding transaction there shall be calculated the "Closing Gain or Loss" which shall be a sum of money equal to the difference between: (x) the amount of the currency which the non-defaulting party contracted to sell under such transaction (the "Sold Currency"); and (y) the amount of the sold currency which is required to purchase the amount of the currency which the non-defaulting party contracted to buy under such transaction (the "Bought Currency"), at the rate of exchange (determined in good faith by the non-defaulting party) at which, on the Close-Out Day, the non-defaulting party could enter into a contract in the foreign exchange market to buy that amount of the Bought Currency in exchange for the Sold Currency for delivery on the relevant value date or the second business day after the Close-Out Day, whichever is later; 3 iii) Each difference calculated in accordance with clause (i) above in currency (other than in U.S. Dollars) shall be notionally converted into U.S. Dollars at the rate of exchange (determined in good faith by non-defaulting party) at which, on the Close-Out Day, the non-defaulting party could enter into a contract in the foreign exchange market to buy such currency in exchange for U.S. Dollars for delivery on such value date or the second business day after the Close-Out Day, whichever is later; iv) The Closing Gain or Loss for each transaction converted into U.S. Dollars as aforesaid as appropriate shall be adjusted to present value by discounting or, if the value date precedes the Close-Out Day, at a then prevailing market rate (as determined in good faith by the non-defaulting party, and calculated on the basis of the actual number of days elapsed and a year of 360 days); and v) The following amounts shall be netted against each other, as appropriate, in the following order: (x) all adjusted Closing Gains or Losses owed by one of us to the other; and (y) at the election of the non-defaulting party, any or all other amounts owing and then due by one of us to the other under this Agreement. The amount due and owing after effecting close out between Bank and Customer as aforesaid shall be immediately due and payable on the Close-Out Day. In addition, the defaulting party will pay the costs and disbursements (including all legal fees and costs) incurred by the non-defaulting party in connection with such close-out or in the enforcement and preservation generally by the non-defaulting party's rights hereunder and under any transaction. Upon notification by 4 the non-defaulting party to the defaulting party of such costs and disbursements, the same will be immediately due and payable. All amounts payable under this Agreement, until paid, shall bear interest from the date they are due at then prevailing market rates (as determined in good faith by the non-defaulting party). All rights and remedies provided in this Agreement are cumulative and are not exclusive of any other rights or remedies which either Bank or Customer may have at common law, by statute or otherwise. Bank reserves all rights of offset available under applicable law. In the event of any inconsistency between the terms of a foreign exchange transaction contract and this Agreement, the terms of the foreign exchange transaction contract shall prevail for the purpose of the foreign exchange transaction therein described. 7. Customer represents and warrants to Bank throughout the term hereof that: (a) it has power to enter into and perform its obligations under this Agreement and the foreign exchange transactions contemplated hereunder; and (b) this Agreement has been duly authorized, executed and delivered by it, does not conflict with or contravene any provision of its constitutional documents or any contractual restriction binding on it or any of its assets and constitutes its valid, binding and enforceable obligation. Customer further represents that it acknowledges that any advice or market commentary given by Bank in connection with this Agreement is 5 incidental to the provision of its services hereunder and will not serve as the primary basis of any investment decision made by Customer. Customer further acknowledges that market commentary made by Bank at any time does not constitute investment or trading advice and may be different from market commentary made to other customers due to individual analysis of fundamental and technical factors by different personnel associated with the Bank and further that such market commentary may not be consistent with our investments or any of our affiliates, officers, directors, employees, agents or independent contractors. 8. Prior to entering into the initial foreign exchange transaction with any investment advisor on Customer's behalf, Customer shall have delivered to Bank evidence satisfactory to Bank of the authority of such investment manager to enter into such transactions on Customer's behalf. Customer agrees that Bank will incur no liability from operating pursuant to the terms hereof and on the basis of the evidence of authority previously furnished to Bank unless and until Bank has received written notice of any changes in authority of the investment manager to act on Customer's behalf. 9. The receipt or recovery by either Bank or Customer of any amount in respect of an obligation of the other in a currency (other than U.S. Dollars), whether pursuant to a judgment of any court or pursuant to Section 7, shall discharge such obligation only to the extent that on the business day immediately following such receipt the recipient shall be able, in accordance with normal banking procedures, to purchase U.S. Dollars with the currency received. If the amount of U.S. Dollars so purchasable shall be less than the original U.S. Dollar amount of such obligation, the obligor shall, 6 as a separate obligation and notwithstanding any judgment of any court, indemnify the recipient against any costs incurred by it in making any such purchase of U.S. Dollars. 10. Customer agrees that Bank may, in its sole discretion, electronically record any telephonic conversation between Customer and Bank and that any such recording may be submitted in evidence to any court or in any legal or arbitration proceeding for the purpose of establishing any matters pertinent to any foreign exchange transaction. 11. All notices, requests, confirmations and other communications not permitted to be given orally hereunder shall be deemed to be effective: i) when received (if acknowledged by appropriate answerback or confirmation of receipt), if given by hand delivery, telex, or facsimile; and ii) on the third day after the day sent, if given by first class mail, postage prepaid. All such communications shall be sent to the receiving party at its address, telex or facsimile number, each as set forth on the signature page hereof. 12. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. Bank and Customer shall endeavor in 7 good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 13. No indulgence or concession is granted by Bank hereunder and no omission or delay on Bank's part in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any right, power or privilege. 14. This Agreement represents Bank's and Customer's entire agreement, supersedes all prior oral or written agreements having the same subject matter, can be modified only by a signed writing, and may not be assigned by Customer without the written consent of Bank. 15. This Agreement will be governed by and construed in accordance with the laws of the State of California without regard to principles on conflicts of law. The parties agree that all actions and proceedings arising in connection with this Agreement shall be tried and litigated only in the State of California. Each party submits to the jurisdiction of the State and Federal courts in California with respect to any such action or proceeding. 16. EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION BETWEEN THEM ARISING OUT OF OR RELATED TO THIS AGREEMENT. 8 AGREED AND ACCEPTED: NOVELLUS SYSTEMS, INC. By: /s/ William J. Wall --------------------------------------- William J. Wall CFO Print Name and Title Date: November 15, 1995 Address: 81 Vista Montana San Jose, CA 95134 Phone: 408-943-3463 Facsimile: 408-943-0202 SUMITOMO BANK OF CALIFORNIA By: /s/ William G. Nelle, Jr. -------------------------------------- William G. Nelle, Jr. Vice President & Manager Print Name and Title Date: November 15, 1995 Address: 84 West Santa Clara Street Suite 700 Santa Jose, CA 95113 Phone: 415-445-8015 (San Francisco) 408-288-6265 (San Jose) Facsimile: 415-445-3909 (San Francisco) 408-288-6292 (San Jose) 9 CORPORATE RESOLUTION TO BORROW Resolved, that this corporation Novellus Systems, Inc. borrow from Sumitomo Bank of California hereinafter called the "Bank," from time to time, such sums of money as, in the judgment of the officer or officers hereinafter authorized, this corporation may require; provided that the aggregate amount of such borrowing, pursuant to this resolution, shall not at any one time exceed the principle sum of One million dollars ($1,000,000.00). In addition to such amount as may be otherwise authorized; Resolved Further, that any 2 of the following named officers ---------------- Specify Number William J. Wall the CFO - ---------------------------------------- ------------------------------------- John P. Root the Product Line Controller - ---------------------------------------- ------------------------------------- the - ---------------------------------------- ------------------------------------- the - ---------------------------------------- ------------------------------------- of this corporation (the officer or officers or officers acting in combination, authorized to act pursuant hereto being hereinafter designated as "authorized officers"), be and they are hereby authorized and empowered, for and on behalf and in the name of this corporation (1) to execute and deliver to the Bank such notes or other evidences of indebtedness of this corporation for the monies so borrowed, with interest thereon, as the Bank may require, and to execute and deliver, from time to time, renewals or extensions of such notes or other evidences of indebtedness; (2) to grant a security interest in: transfer, or otherwise hypothecate or deed in trust for Bank's benefit and deliver by such instruments in writing or otherwise as may be demanded by the Bank, any of the property of this corporation as may be required by the Bank to secure the payment of any notes or other indebtedness of this corporation to the Bank, whether arising pursuant to this resolution or otherwise; and (3) to perform all acts and execute and deliver all instruments which the Bank may deem necessary to carry out the purposes of this resolution; Resolved Further, that said authorized officers be and they are hereby authorized and empowered, and that any one of said authorized officers be and he is hereby authorized and empowered (1) to discount with or sell to the Bank, conditional sales contracts, notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness payable to this corporation, upon such terms as may be agreed upon by them and the Bank, and to endorse in the name of this corporation said notes, acceptances, drafts, bailment agreements, leases, receivables and evidences of indebtedness so discounted, and to guarantee the payment of the same to the Bank, and (2) to apply for and obtain from the Bank letters of credit and in connection therewith to execute such agreements, applications, guarantees, indemnities and other financial undertakings as Bank may require; Resolved Further, that this resolution will continue in full force and effect until the Bank shall receive official notice in writing from this corporation of the revocation thereof by a resolution duly adopted by the Board of Directors of this corporation, and that the certification of the Secretary of this corporation as to the signatures of the above named persons shall be binding on this corporation. I, William J. Wall Secretary of the above named corporation, duly organized and existing under the laws of the State of California, do hereby certify that the foregoing is a full, true and correct copy of a resolution of the Board of Directors of said corporation, duly and regularly passed and adopted at a meeting of the Board of Directors of said corporation which was duly and regularly called and held on the________________day of_________________________ at which meeting a quorum of the Board of Directors of said corporation was at all times present and acting. I further certify that said resolution is still in full force and effect and has not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for this corporation by virtue of said resolution. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary, and affixed the corporate seal of said corporation this 7 day of December, 1995. AUTHORIZED SIGNATURES: /s/ William J. Wall - --------------------------------- (Signature) /s/ John P. Root SEAL - ---------------------------------- (If none, (Signature) no state) - --------------------------------- (Signature) /s/ William J. Wall - ---------------------------------- ---------------------------------------- (Signature) (Signature) (Secretary) EX-10.18 5 EXHIBIT 10.18 Date: August 31, 1995 --------------------- To: The Mitsubishi Bank, Limited GUARANTEE The maximum amount guaranteed Three Hundred Million Japanese Yen The term of this guarantee Valid Until August 21, 1996 In regard to any and all obligations the Principal presently owes and/or may owe your Bank as a result of transactions at any time until the date set forth above provided for in Article 1 of the Agreement of Bank Transactions as well as the terms set forth below with regard to the performance of any such obligations: 1. Even if you Bank changes or releases the security or other guarantees at your Bank's convenience, the Guarantor shall not claim exemption from the obligations. 2. The Guarantor shall not effect a setoff by any of the Principal's deposits or credits with your Bank. 3.If and when the Guarantor performs any obligations of this guarantee, the Guarantor shall not exercise any rights obtained from your Bank by subrogation without the prior approval of your bank so long as transactions between the Principal and your Bank continue. Upon your Bank's demand, the Guarantor shall assign such rights and priority to your Bank without compensation. 4. In cases in which the Guarantor has given or gives in the future any other guarantee in regard to any of the Principal's obligations to your Bank, the total amount of the obligations guaranteed shall, unless otherwise agreed, be the aggregate of such guarantees, and this guarantee shall not affect any such other guarantees. The Principal: Signature: --------- Full Name: Revenue Stamp Address: ---------- The Guarantor: Signature: /s/ Full Name: William T. Wall Address: Novellus Systems, Inc. 81 Vista Montana San Jose, CA 95134 (All questions that may arise within or without courts of law in regard to the meaning of the words, provisions and stipulations of the Agreement shall be decided in accordance with the Japanese text.) [GRAPHIC] - ------ COPY - ------ Date ,19 -------------------- TO: THE MITSUBISHI BANK, LIMITED AGREEMENT ON BANK TRANSACTIONS I/We do hereby agree to the terms and conditions set forth in the following Articles in regard to my/our transactions with your Bank: Article 1 (Scope of Application) (1) I/We shall abide by this Agreement pertaining to the performance of my/our obligations arising from loans against Bills of Exchange (hereinafter referred to as "Bills"), discounts of Bills and Notes, loans by deed, overdrafts, acceptances and guarantees, foreign exchanges, and any and all other transactions. (2) Even in cases in which your Bank has, through your Bank's transactions with any third party, acquired Bills and Notes drawn, endorsed, accepted, accepted by intervention, or guaranteed by me/us, I/we shall also abide by this Agreement pertaining to the performance of my/our obligations evidenced by such Bills and Notes. Article 2 (Obligations in Bills and Notes and Money Borrowed) In cases in which your Bank has granted me/us loans accompanied by Bills and Notes, your Bank may demand from me/us the payment of my/our obligations arising from the loans by exercising your Bank's rights either on the Bills and Notes or on the loans. Article 3 (Interest, Damages, etc.) (1) In regard to the stipulations concerning the rates of interest, discount charges, guarantee fees, handling commissions and rebates of any thereof, and also concerning the time and method of payment thereof, I/we shall agree, in the event of changes in the financial situation or any other reasonable and probable causes arising, to the revision of the stipulations to those in the range prevailing generally (2) In case I/we fail to perform any obligations which I/we owe your Bank, I/we shall pay your Bank damages at the rate of 14% annum for the amount payable. In this case the calculation will be made the actual number of days on a 365-day basis. Article 4 (Security) (1) In cases in which a reasonable and probable cause necessitates the preservation of your Bank's rights, I/we shall upon demand forthwith furnish to your Bank such security or additional security, or such guarantors or additional guarantors as may be approved by your Bank. (2) Any and all security which has been furnished and that to be furnished in the future to your Bank for specific obligations shall constitute security that covers and secures not only such obligations, but also any and all other obligations which I/we at present or in the future may owe your Bank. (3) Your Bank may collect or dispose of security in the manner, at the time, and for the price, etc. generally deemed proper, not necessarily following the procedures prescribed by law, and deduct expenses from the proceeds and appropriate the remainder to the payment of my/our obligations regardless of the priority prescribed by law; and in the event any obligations still remain, I/we shall pay them forthwith. (4) In cases in which I/we fail to perform any obligations which I/we owe your Bank. Your Bank may collect or dispose of my/our movables, Bills and Notes, and other instruments and securities in your Bank's possession' and in such cases, I/we shall agree to your Bank's handling the matter mutatis mutandis in the manner set forth in the preceding Paragraph. -3- Article 5 (Acceleration of Payment) (1) In case any one of the following events occurs to me/us, any and all obligations I/we owe your Bank shall immediately become due and payable without any notice or demand, etc. from your Bank: and I/we shall pay such obligations forthwith; 1. When I/we have become unable to pay debts or application or petition is submitted for bankruptcy, commencement of composition of creditors, commencement of corporate reorganization proceedings, commencement of company arrangement, or commencement of special liquidation. 2. When the Clearing House in observance of its rules takes procedures for suspension of my/our transactions with banks and similar institutions. 3. When order or notice of provisional attachment. preservative attachment or attachment is dispatched in respect of my/our or the guarantor's deposits and/or any other credits with your Bank. 4. When my/our whereabouts become unknown to your Bank due to my/our failure to notify your Bank of change of my/our address or any other causes attributable to me/us. (2) In any of the following cases, upon your Bank's demand, any and all obligations I/we owe your Bank shall immediately become due and payable; and I/we shall pay them forthwith: 1. When I/we fail to pay any of my/our obligations to your Bank when it is due. 2. When property offered to your Bank as security is attached or public auction procedure is commenced in respect of such property. 3. When I/we violate the stipulation of any transactions with your Bank. 4. When the guarantor fails under any one of the items of the preceding items, when a reasonable and probable cause necessitates the preservation of your Bank's rights. 5. In addition to each of the preceding items, when a reasonable and probable cause necessitates the preservation of your Bank's rights. Article 6 (Repurchase of Discounted Bills and Notes) (1) In cases in which I/we have has Bills and Notes discounted by your Bank and any one of the items in Paragraph (1) of the preceding Article occurs to me/us, then pertaining to all such Bills and Notes, or in cases in which the principal obligators of my/our discounted Bills and Notes fail to pay them on due dates or any one of the items in Paragraph (1) of the preceding Article occurs to the principal obligators, them pertaining to the Bills and Notes wherein such persons are the principal obligates. I/we shall assume as a matter of course the repurchasing obligations for the face value of my/our discounted Bills and Notes without any notice or demand, etc. form your Bank; and I/we shall pay them forthwith. (2) In cases other than those provided for in the preceding Paragraph, in which a reasonable and probable cause necessitates the preservation of your Bank's rights pertaining to the Bills and Notes which your Bank has discounted, I/we shall assume, upon your Bank's demand, the repurchasing obligations for the face value of my/our discounted Bills and Notes; and I/we shall pay them forthwith. (3) As long as I/we do not perform the obligations set forth in the preceding two paragraphs, your Bank may exercise any and all rights as holder of the Bills and Notes. Article 7 (Deductions in Accounts) (1) In cases in which I/we must perform any obligations owed to your Bank because they become due or because they become due or because of acceleration of payment or because I/we have assumed the -4- repurchasing obligations or because your Bank has acquired the right of claiming compensation from me/us or for any other causes, your Bank may set off against any such obligations at any time any of my/our deposits and/or any other credits with your Bank irrespective of the due dates of such deposits and/or other credits. (2) In cases in which your Bank is able to effect a setoff as mentioned in the preceding paragraph, your Bank may also obtain withdrawals from my/our deposits in lieu of my/our doing so, and may appropriate any such withdrawals to payments of my/our obligations, omitting any advance notice and also not adhering to established procedures. (3) In cases in which your Bank makes any deductions in accounts according to the provisions of the preceding two Paragraphs, interest on my/our credits and obligations, discount charges and damages, etc. shall be calculated up to the date on which the actual calculation is made by your Bank for the purpose of deductions and the rate of interest and tariffs shall be in accordance with those fixed by your Bank: and with regard to the foreign exchange rate, the rate quoted at your Bank at the time when the actual calculation is made by your Bank shall apply. Article 7-2 (Ditto) (1) I/we may set off any obligations I/we owe your Bank against my/our deposits and/or any other credits with your Bank which have become due, even when such obligations have not yet become due. (2) When I/we effect a setoff under the provision of the preceding Paragraph with regard to the Bills and Notes which your Bank has discounted and assigned to a third party. (3) With regard to my/our credits or obligations in foreign currency or in free yen, I/we may not, notwithstanding the provisions of the preceding two paragraphs, effect a setoff until and unless they have become due and procedures required under foreign exchange laws and regulations have been completed for them. (4) In cases in which I/we effect a setoff under the provisions of the preceding three Paragraphs, a notice of the setoff shall be made in writing and I/we shall affix my/our seal impression (or signature) which has previously been filed with our Bank to the certificate or passbook representing my/our obligations and submit the same to your Bank Forthwith. (5) In cases in which I/we effect a setoff, interest on my/our credits and obligations, discount charges and damages, etc. shall be calculated up to the date on which my/our notice charges and damages, etc. shall be calculated up to the date on which my.our notice of the setoff arrives at your Bank, and the rate of interest and tariffs shall be in accordance with those fixed by your Bank; and with regard to the foreign exchange rate, the rate quoted at your Bank at the time when the actual calculation is made by your Bank for the purpose of setoffs shall allow. If there is an agreement providing for special charges payable when obligations are paid prior to their due dates, I/we shall abide by such agreement. Article 8 (Presentment and Delivery of Bills and Notes) (1) In cases in which there exist Bills and Notes pertaining to my/our obligations, and your Bank makes deductions in accounts as set forth in Article 7 without exercising your Bank's rights on the Bills and Notes, your Bank need not simultaneously return to me/us any such Bills and Notes. (2) In cases in which there exist Bills and Notes which your Bank returns to me/us as a result -5- of deductions in accounts made by your Bank or me/us under the preceding two Articles. I/we shall appear at your Bank to receive such Bills and Notes without delay: provided. however, that if such Bills and Notes have not yet become due, your Bank may collect them without returning them to me/us. (3) In cases in which your Bank makes deductions in accounts as set froth in Article 7 by exercising their rights on the Bills and Notes, your Bank need not present nor deliver any such Bills and Notes to me.us in the cases enumerated below; and as for my/our receiving such Bills and Notes, the provisions of the preceding paragraph shall alloy mutatis mutandis: 1. When your Bank does not know my/our whereabouts. 2. When I/we have designated your Bank as the place at which Bills and Notes are made payable. 3. When it is deemed difficult to dispatch the Bills and Notes. 4. When it is deemed that presentment or delivery of the Bills and Notes can not be made for unavoidable reasons as use for collections, etc. (4) In cases in which any of my/our obligations which require immediate performance still exist after a deduction in accounts has been effected as provided for in the preceding two Articles, and there also exist obligators on the Bills and Notes besides me/us, your Bank may appropriate the proceeds to the payment of my/our obligations. Article 9 (Designation of Appropriation) (1) In the event I/we made payments of your Bank made deductions in accounts as provided for in Article 7, and if in such cases the amount of such payments made by me/us or my/our deposits and any other credits with your Bank are insufficient to liquidate all of my/our obligations, your bank may appropriate the amount of such payments or such deposits and other credits to satisfy my/our obligations in such order and in such manner as your Bank deems proper and I/we shall raise no objection to such appropriation. Article 9-2 (Ditto) (1) In the event I/we effect a setoff in accordance with Article 7-2, and if in such case my/our deposits and any other credits with your Bank are insufficient to liquidate all of my/our obligations, I/we may appropriate such deposits and other credits to satisfy my/our obligations in such order and in such manner as I/we designate. (2) In the event I/we fail to designate the order and manner of appropriation under the preceding Paragraph, your bank may appropriate my/our deposits and other credits with your Bank to satisfy my/our obligations in such order and in such manner as your Bank deems proper and I/we shall raise no objection to such appropriation. (3) In the event my/our designation under Paragraph (1) is likely to interfere with the preservation of your Bank's rights, your Bank may, upon lodging an objection thereto without delay, appropriate my/our deposits and other credits with your Bank to satisfy my/our obligations in such order and in such manner as your Bank designates taking into consideration whether or not the obligations are secured or guaranteed and if secured or guaranteed, the extent of coverage of such security or guarantee, the degree of difficulty or disposition of such security their due dates prospects for settlement of discounted Bills and Notes, etc. (4) In case of appropriation by your Bank under the preceding two Paragraphs, your Bank may designate the order and manner or appropriation on the assumption that my/our obligations which are in fact not due have become due or that I/we have assumed the -6- repurchasing obligations with regard to the Bills and Notes which your Bank has discounted and which have not yet become due or that I/we have assumed in advance the obligations to compensate your Bank with regard to the acceptances and guarantees. Article 10 (Assumption of Risks, Hold Harmless Clause, etc.) (1) in cases in which Bills and Notes which I/we have furnished to your Bank are lost, destroyed, damaged or delayed in arrival due to unavoidable circumstances such as incidents, calamities, accidents during transit, etc., I /we shall pay my/our obligations as recorded on your Bank's nooks, vouchers, etc. and further, upon your Banks's demand, I/we shall forthwith furnish your Bank with substitute Bills and Notes or instruments. I/we shall make no claim whatsoever against your Bank with regard to losses and damages arising in such cases. (2) In cases in which security which I/we have furnished to your Bank is lost or damaged due to unavoidable circumstances as set forth in the preceding Paragraph. I/we shall make no claim whatsoever against your Bank. (3) Even if your Bank's rights on Bills and Notes are ineffective due to lack of legal requirements in the Bills and Notes, or due to invalidating entries thereon, or if your Bank's rights on the Bills and Notes lapse die to inadequacy in the procedures for preservation of your Bank's rights, I/we shall be liable for the face value of such Bills and Notes. (4) In transactions in which your Bank has deemed my/our seal impression (or signature) genuine after checking with reasonable care the seal impression (or signature) on Bills and Notes or instruments against my/our seal impression (or specimen signature) filed with your Bank, I/we shall bear any losses and damages arising from forgery, alteration, wrongful use of Bills and Notes, instruments or seals (or signatures) and shall be liable in accordance with the terms of any such Bills and Notes or instruments. (5) I/We shall bear the expenses incurred in exercising or preserving your Bank's rights against me/us, or in collecting or disposing of any security: and I/we shall also bear any expenses required in the event I/we request your Bank to cooperate with me/us for the preservation of my/our rights. Article II (Changes in Matters Filed) (1) In cases of a change in the matters filed with your Bank such as my/seal (or signature), name, trade name, representative, address, etc., I/we shall forthwith notify your Bank thereof in writing. (2) In any case any notice given by your Bank or any documents, etc. dispatched by your Bank are delayed or fail to reach me/us because of my/our failure to notify your Bank in accordance with the preceding Paragraph, the notice or documents, etc. shall be deemed to have arrived at the time they normally should have arrived. Article 12 (Report and Investigation) (1) Upon your Bank's demand, I/we shall forthwith submit to your Bank reports pertaining to my/our assets and liabilities, management or the state of business; and I/we shall forthwith submit to your bank reports thereof even in the absence of your Bank's demand. (2) In cases in which material change has occurred or is likely to occur pertaining to my/our assets and liabilities, management or the state of business, I/we shall forthwith submit to your Bank reports thereof even in the absence of your Bank's demand. Article 13 (Applicable Offices) (1) I/we agree that all of the terms and conditions of this Agreement shall apply equally to all of our transactions with your Bank's head office and branch offices. -7- Article 14 (Jurisdiction by Agreement) In the event the institution of a lawsuit in connection with a transaction covered by this Agreement becomes necessary, I/we shall agree that the Court having the jurisdiction in the locale in which the head office or _________________ branch office of your Bank is situated shall be the competent Court. ---------- Signature : Revenue Full Name : Stamp Address : ---------- (All questions that may arise within or without courts of law in regard to the meaning of the words, provisions and stipulations of this Agreement shall be decided in accordance with the Japanese text.) -8- CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT STATE OF CALIFORNIA } } s.s. COUNTY OF SANTA CLARA } ON THIS 31ST DAY OF AUGUST, 1995 BEFORE ME, R.E. STANDISH, NOTARY PUBLIC, PERSONALLY APPEARED WILLIAM J. WALL -------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- / / PERSONALLY KNOWN TO ME-OR -/ /PROVED TO ME ON THE BASIS OF SATISFACTORY EVIDENCE TO BE THE PERSON /S WHOSE NAME /S IS/ARE SUBSCRIBED TO THE WITHIN INSTRUMENT AND ACKNOWLEDGED TO ME THAT HE/SHE/THEY EXECUTED THE SAME IN HIS/HER/THEIR AUTHORIZED CAPACITIES, AND THAT HIS/ HER/ THEIR SIGNATURE /S ON THE [SEAL] INSTRUMENT THE PERSON /S OR THE ENTITY UPON BEHALF OF WHICH THE PERSON /S ACTED EXECUTED THE INSTRUMENT. WITNESS MY HAND AND OFFICIAL SEAL. /S/ R.E STANDISH ---------------------------------------- (SEAL) R.E. STANDISH NOTARY PUBLIC THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW: TITLE OR TYPE OF DOCUMENT GUARANTEE ---------------------------------------------------- NUMBER OF PAGES SIX (6) DATE OF DOCUMENT AUGUST 31, 1995 -------------- -------------------------------- SIGNERS OTHER THAN NAMED ABOVE ----------------------------------------------- /X/ INDIVIDUAL /X/ CORPORATE OFFICER(S) TITLES(S) C.F.O ---------------------- / / PARTNERS / / LIMITED / / GENERAL / / ATTORNEY - IN - FACT / / TRUSTEE(S) / / TRUSTOR(S) / /BENEFICIARY/S/ / / GUARDIAN/CONSERVATOR / / OTHER: ------------------------------------------------------ [LOGO] SIGNER IS REPRESENTING: NOVELLUS ------------------------------------------- RESOLVED, that this Corporation, Novellus Systems, Inc. is hereby authorized to give a letter of guarantee for a loan extended to its subsidiary, Nippon Novellus Systems, KK by the Mitsubishi Bank, LTD. Naruse Branch 2-2 Minaminaruse, 1-chome Machida, Tokyo 194 Japan. CORPORATE SECRETARY'S CERTIFICATE I, WILLIAM J. WALL, Secretary of NOVELLUS SUSTEMS, INC., a corporation organized and existing under the laws of the State of CALIFORNIA (the "Corporation"), hereby certify that the foregoing is a full, true and correct copy of resolutions of the Board of Director of the Corporation, duly and regularly adopted by the Board of Directors of the Corporations in all respects as required by law and the by-laws of the Corporation on JULY 21, 1995, at a meeting at which a quorum of the Board of Directors of the Corporation was present and the requisite number of such directors voted in favor of said resolutions, or by the unanimous consent in writing of all members of the Board of Directors of the Corporation to the adoption of said resolutions. I further certify that said resolutions are still in full force and effect and have not been amended or revoked, and that the specimen signatures appearing below are the signatures of the officers authorized to sign for the Corporation by virtue of such resolutions. IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of the Corporation, and affixed the corporate seal of the Corporation, on JULY 21, 1995. /s/William J. Wall ---------------------------- SIGNATURE SECRETARY OF Novellus Systems, Inc. ---------------------------- AFFIX CORPORATE SEAL HERE A California CORPORATION ---------------------------- EX-10.22 6 EXHIBIT 10.22 LEASE BY AND BETWEEN W. F. BATTON & CO., INC., LESSOR AND NOVELLUS SYSTEMS, INC., LESSEE Northpointe Business Center 3590 North First Street San Jose, California September 26, 1995 TABLE OF CONTENTS PARAGRAPH PAGE 1 Hiring . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Option to Extend . . . . . . . . . . . . . . . . . . . . . . . 3 4 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . 3 5 Monthly Base Rent. . . . . . . . . . . . . . . . . . . . . . . 4 6 Additional Rent; Increases in Operating Expenses and Taxes . . 7 7 Payment of Rent. . . . . . . . . . . . . . . . . . . . . . . .12 8 Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 9 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . .13 10 Taxes on Lessee's Property . . . . . . . . . . . . . . . . . .14 11 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . .15 12 Indemnification. . . . . . . . . . . . . . . . . . . . . . . .16 13 Construction of Leasehold Improvements . . . . . . . . . . . .16 14 Maintenance and Repairs; Alterations . . . . . . . . . . . . .17 15 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . .19 16 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 17 Assignment and Subletting. . . . . . . . . . . . . . . . . . .20 18 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 19 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . .23 20 Damage or Destruction. . . . . . . . . . . . . . . . . . . . .24 21 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . .26 22 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . .27 23 Lessee's Personal Property . . . . . . . . . . . . . . . . . .28 24 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .28 25 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . .29 26 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . 29 27 Real Estate Brokers. . . . . . . . . . . . . . . . . . . . . .29 28 Expansion Space. . . . . . . . . . . . . . . . . . . . . . . .29 29 Subordination. . . . . . . . . . . . . . . . . . . . . . . . .30 30 No Termination Right . . . . . . . . . . . . . . . . . . . . .30 31 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . .30 32 Lessor's Entry . . . . . . . . . . . . . . . . . . . . . . . .31 33 Reasonable Expenditures. . . . . . . . . . . . . . . . . . . .31 34 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . .31 35 General Provisions . . . . . . . . . . . . . . . . . . . . . .31 SCHEDULE OF EXHIBITS Exhibit "A" - Legal Description Exhibit "B" - the Premises Exhibit "C" - Leasehold Improvements L E A S E THIS LEASE is made and entered into as of September 26, 1995 by and between W. F. BATTON & CO., INC., a California corporation, hereafter referred to as "Lessor," and NOVELLUS SYSTEMS, INC., a California corporation, hereafter referred to as "Lessee." The parties agree as follows: 1. HIRING. (a) Lessor hereby leases to Lessee, and Lessee leases and hires from Lessor, those certain premises consisting of approximately Six Thousand Two Hundred Sixty-eight (6,268) rentable square feet (the "premises") located on the third floor of that certain building commonly known as Northpointe Business Center, 3590 North First Street, San Jose, California (the "Building"). This Lease shall be for the term, at the rental, and upon the covenants and conditions contained herein. The building is located on Parcel One of the real property described on EXHIBIT "A" attached hereto and incorporated by reference herein. The premises are shown as the shaded area on EXHIBIT "B" attached hereto and incorporated by reference herein. (b) The Building contains Eighty-six Thousand Seven Hundred Thirteen (86,713) rentable square feet. (c) The real property referred to above, including the Hetch Hetchy Lease area used for additional parking area for the tenants of the Building, together with the Building and all other improvements now or hereafter located on said real property, are hereafter called the "Complex." (d) The portion of the real property referred to above not covered by the Building is hereafter called the "Outside Areas." (e) "Lessee's Share" as used in this Lease shall mean the percentage calculated by dividing the total number of rentable square feet of the premises by the total number of rentable square feet in the Building. The parties agree that Lessee's Share shall be 7.23% based upon the premises consisting of approximately Six Thousand Two Hundred Sixty-eight (6,268) rentable square feet (6,268/86,713). 2. INITIAL TERM, (a) The initial term of this Lease (the "initial term") shall commence (the "Commencement Date") five (5) days after written notice from Lessor to Lessee of the first to occur of (1) the date a notice of completion for the Lessee Interior Improvements constructed by Lessor is filed by Lessor; or (2) the date the City of San Jose completes a final inspection and approves the Lessee Interior Improvements so completed in accordance with the building permit; or (3) the date Lessor's architect and general contractor have both certified in writing to Lessee that the Lessee Interior Improvements have been substantially completed in accordance with the plans; or (4) the date on which the Lessee occupies the premises. The parties shall cooperate in attempting to cause the Lessee Interior Improvements to be completed on or about October 15, 1995. Lessee agrees to accept possession of the premises and to occupy the premises when possession is delivered by Lessor, provided that the Lessee Interior Improvements have been substantially completed by Lessor. The initial term of this Lease shall expire, unless sooner terminated, on the last day of the sixtieth (60th) full calendar month after the Commencement Date. (b) If Lessor is unable to deliver possession of the premises to Lessee pursuant to Paragraph 2(a) by October 15, 1995 for any reason, Lessor shall not be liable for any damage to Lessee caused by the delay in delivering possession, and this Lease shall not be void or voidable nor shall Lessee be relieved of any obligation hereunder; provided, that, unless Lessee agrees in writing, in no event shall Lessor deliver possession of the premises after November 30, 1995 plus the period equal to any delays in completing the Lessee Interior Improvements caused by Lessee or caused by strikes, labor disputes or work stoppages, unavailability or delay in delivery of materials, inclement weather, acts of God, or other causes beyond Lessor's control (collectively, "excusable delays"). In the event that Lessor has not delivered possession of the premises to Lessee by November 30, 1995, plus the period of excusable delays, Lessee may terminate this Lease by giving written notice to Lessor within thirty (30) days thereafter. Upon such termination, Lessor and Lessee shall be discharged from all obligations hereunder, and Lessor shall return within ten (10) days of receipt of such notice of termination any and all money previously deposited by Lessee in connection herewith. In the event that delivery of possession of the premises is delayed beyond November 30, 1995 by excusable delays, Lessor, in addition to all other rights and remedies, may in its discretion extend the Commencement Date of this Lease by the period of such delay (including beyond November 30, 1995). (c) Lessee's acceptance of the premises shall not be deemed a waiver of Lessee's right to have defects in the Lessee Interior Improvements or the premises repaired at Lessor's sole expense during the first twelve (12) months of the initial term. Lessee shall give written notice to Lessor whenever any such defect becomes reasonably apparent, and 2 provided that such written notice is given to Lessor within twelve (12) months after the Commencement Date, Lessor shall repair such defect as soon as practicable. Lessor also hereby assigns to Lessee all warranties with respect to the premises which would reduce Lessee's maintenance obligations hereunder and Lessor shall cooperate with Lessee to enforce all such warranties. 3. OPTION TO EXTEND. Lessor hereby grants to Lessee one (1) option to extend the lease term for one (1) period of thirty-six (36) calendar months immediately following the expiration of the initial lease term. Lessee may exercise the foregoing option to extend by giving written notice of exercise to Lessor at least six (6) months, but not more than twelve (12) months prior to the expiration of the initial term; provided that if Lessee is currently in default under this Lease at the time of exercise of the option, such notice shall be void and of no force or effect. The option extension period, if exercised, shall be upon the same terms and conditions as the initial term, except that the Monthly Base Rent during the option period shall be determined as set forth in Paragraphs 5(d) and 5(e) below, and there shall be no additional option to extend. The option to extend granted to Lessee by this Paragraph 3 is granted for Lessee's personal benefit only, and shall be exercisable only by Novellus Systems, Inc. Said option may not be assigned or transferred by Novellus Systems, Inc. to any assignee or sublessee. Notwithstanding anything to the contrary contained above, Lessee shall be entitled to transfer the option to extend granted by this Paragraph 3 pursuant to a permitted transfer without Lessor's prior written consent as set forth in Paragraph 17(i) hereof. 4. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the sum of Fifteen Thousand Dollars ($15,000) as a security deposit as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Monthly Base Rent, Additional Rent, or other charges due hereunder, or otherwise defaults under this Lease (as default is defined in Paragraph 22), Lessor may use, apply or retain all or any portion of the security deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including reasonable attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the security deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore the security deposit to the full amount required by this Lease. Lessor shall not be required to keep all or any part, of the security deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the premises, return to Lessee (or, at Lessee's option, to the last assignee, if any, of Lessee's interest herein), that portion of the security deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the security deposit shall be considered to be held in trust, to 3 bear interest or other increment of its use, or to be prepayment for any moneys to be paid by lessee under this lease. 5. MONTHLY BASE RENT. (a) Lessee shall pay to lessor for each full calendar month during the initial thirty (30) calendar months of the lease term, plus the partial month if any at the commencement of the lease term, Monthly Base Rent of Ten Thousand Six Hundred Fifty-Five and Sixty Hundredths Dollars ($10,655.60) per month. Upon the execution and delivery of this lease by Lessor and Lessee, Lessee shall pay to Lessor the sum of Ten Thousand Six Hundred Fifty-five and Sixty Hundredths Dollars ($10,655.60) representing the Monthly Base Rent for the first month of the lease term. Monthly Base Rent for any partial calendar month at the commencement of the lease term shall be payable at the rate of Three Hundred Fifty-five and Sixty Hundredths Dollars ($355.18) per day. (b) Lessee shall pay to Lessor for each calendar month during the period beginning with the thirty-first (31st) full calendar month of the lease term and continuing through the Sixtieth (60th) full calendar month of the lease term, Monthly Base Rent of Eleven Thousand Five Hundred Thirty-three and Twelve Hundredths Dollars ($11,533.12) per month. (c) Monthly Base Rent is determined on a full service basis and includes the Base Operating Expenses (including standard electrical service) and Base Taxes referred to in Paragraph 6(b) hereof. (d) The Monthly Base Rent for the premises during the option extension period shall be an amount equal to the then existing fair market rent of the premises as of the commencement date of the option extension period ("The Option Monthly Base Rent"), but in no event shall the Option Monthly Base Rent be less than the Monthly Base Rent in effect for the last month of the initial lease term. The fair market rent for the premises for the option extension period shall be determined by comparison with comparables (including typical market concessions) for similar class "A" buildings in the Santa Clara area. Said Option Monthly Base Rent for the option extension period shall be established by agreement between the Lessor and Lessee, if possible, and by the process of appraisal if the parties cannot reach agreement. At least six (6) months, but not more than twelve (12) months, prior to the expiration of the initial lease term, Lessee shall deliver notice to Lessor of Lessee's determination of the ammount of the fair market Monthly Base Rent of the premises as of the commencement of the option term, which shall in no event be less than the Monthly Base 4 Rent in effect at the expiration of the initial term; provided that, in the event Lessee has no intention of exercising the option to extend the lease term, then Lessee shall have no obligation to deliver notice to Lessor of Lessee's determination. If Lessor disagrees with Lessee's determination of the amount of the fair market Monthly Base Rent of the premises, Lessor shall so notify Lessee within thirty (30) days after Lessor receives Lessee's notice of exercise of the option to extend the lease term. In the event that Lessee timely gives notice to Lessor of Lessee's election to exercise the option to extend the lease term and Lessor does not give Lessee notice in writing that Lessor disagrees with Lessee's determination of fair market rent within the time period referred to above, Lessor and Lessee shall execute an amendment to this Lease stating that the initial Monthly Base Rent for the premises during the option extension period shall be equal to the amount of Lessee's determination. If Lessor notifies Lessee that Lessor disagrees with Lessee's determination of the fair market rent for the premises within thirty (30) days after Lessor receives Lessee's notice of exercise of option, then the two parties shall confer for an additional period of ten (10) days to attempt in good faith to reach agreement upon the fair market rent for the premises. If after the expiration of said additional ten (10) day period the parties have not reached a written agreement as to the amount of the fair market rent for the premises, then such fair market rent shall be determined by appraisal as provided in subparagraph (e) below, subject to the condition that the Monthly Base Rent for the option extension period shall not be less than the Monthly Base Rent in effect at the expiration of the initial term. (e) If it becomes necessary to determine by appraisal the fair market Monthly Base Rent for the premises as of the commencement of the option term, real estate appraiser(s), each of whom shall be members of the American Institute of Real Estate Appraisers (AIREA), with at least five (5) years' full- time commercial real estate appraisal experience in the San Jose, California Area, shall be appointed and shall act in accordance with the procedures set forth below. Either party may demand an appraisal by giving written notice to the other party, which demand to be effective must state the name, address, and qualifications of an appraiser selected by the party demanding an appraisal (the "Notifying Party"). Within ten (10) days following the Notifying Party's appraisal demand, the other party (the "Non-Notifying Party") shall either approve the appraiser selected by the notifying party or select a second properly qualified appraiser by giving written notice of the name, address, and qualification of said appraiser to the Notifying Party. If the Non-Notifying Party fails 5 to select an appraiser within the ten (10) day period, the appraiser selected by the Notifying Party shall be deemed selected by both parties and no other appraiser shall be selected. If two appraisers are selected, they shall select a third appropriately qualified appraiser within five (5) days of being selected. If the two appraisers fail to select a third qualified appraiser within such five (5) day period, then the third appraiser shall be appointed by the then Presiding Judge of the Superior Court of Santa Clara County. If only one appraiser is selected, that appraiser shall notify the parties in simple letter form of its determination of the fair market Monthly Base Rent for the premises within fifteen (15) days following his selection, which appraisal shall be conclusively determinative and binding on the parties as the appraised current fair market rental for the premises. If multiple appraisers are selected, each appraiser shall within ten (10) days of being selected make his determination of the current fair market Monthly Base Rent for the premises in simple letter form. If two (2) or more of the appraisers agree on the rent for the premises, such agreement shall be determinative and binding upon the parties. If multiple appraisers are selected and two (2) appraisers are unable to agree on the rent, the parties shall then determine the fair market Monthly Base Rent for the premises by taking the mean average of the appraisals; provided, that any high or low appraisal, differing from the middle appraisal by more than ten percent (10%) of the middle appraisal, shall be disregarded in calculating the average. The appraisers' determination of the current fair market Monthly Base Rent of the premises shall be based on the criteria refeffed to in Paragraph 5(d)(1) above. If only one appraiser is selected, then each party shall pay one- half of the fees and expenses of that appraiser. If three appraisers are selected, each party shall bear the fees and expenses of the appraiser it selects and one-half of the fees and expenses of the third appraiser. Thereafter, in the event that Lessee timely gives notice to Lessor to extend the term of this Lease to include the option extension period, Lessor and Lessee shall execute an amendment to this Lease stating that the Monthly Base Rent for the premises during the option extension period shall be equal to the greater of (1) the Monthly Base Rent as determined by appraisal; or (2) the Monthly Base Rent in effect at the expiration of the initial term. 6 6. ADDITIONAL RENT: INCREASES IN OPERATING EXPENSES AND TAXES. (a) If Operating Expenses and/or Taxes for any calendar year during the term of this Lease after the calendar year 1996 exceed Base Operating Expenses and/or Base Taxes as defined in Paragraph 6(d) hereof, Lessee shall pay to Lessor, as "Additional Rent," Lessee's Share of such increase in Operating Expenses and Taxes in accordance with Paragraph 6(f) hereof. (b) "Base Operating Expenses" and "Base Taxes" shall mean the actual Operating Expenses and Taxes of the Complex for the calendar year 1996, adjusted to reflect a ninety-five percent (95%) occupancy rate of the Complex throughout such year. (c) "Operating Expenses," as used herein, shall include all direct costs of management, operation, maintenance, repair and replacement, of the Complex and providing services to tenants of the Building as determined by standard accounting practices (unless excluded by this Lease) including, but not limited to: Personal property taxes related to the Complex; fees and assessments payable to Northpointe Business Park Association; rental and other charges for the Hetch Hetchy lease which is used as additional parking area for the Complex; any parking taxes or levies; a pro rata portion of the salaries and wages of all employees of Lessor engaged in the operation and administration of the Complex, in an aggregate amount not to exceed the amount of five percent (5%) of the total of all other monthly Operating Expenses exclusive of such amount of salaries and wages; water and sewer charges; waste disposal; insurance premiums for insurance coverages maintained by Lessor pursuant to Paragraph 11 (b) hereof; license, permit, and inspection fees; charges for electricity, heating, air conditioning, gas, and any other utilities (including, without limitation, any temporary or permanent utility surcharge or other exaction); security; janitorial services and maintenance contracts; painting and repairing, interior and exterior; maintenance and replacement of floor and window coverings; repair, maintenance, and replacement of air-conditioning, heating, mechanical and electrical systems, elevators, plumbing and sewage systems; landscaping and gardening of Outside Areas; glazing; repair, maintenance, cleaning, sweeping, striping, and resurfacing of the parking area; supplies, materials, equipment and tools in the maintenance of the Complex; costs for accounting services incurred in the calculation of Operating Expenses and Taxes and Lessee's Share thereof as defined herein; and the cost of any other capital expenditures for any improvements or changes to the Building which are required by laws, ordinances, or other governmental regulations adopted after the Commencement Date or for any items which are intended to and have the effect of reducing Operating Expenses; provided, however, that in the event Lessor makes such capital improvements, Lessor shall amortize its investment in said improvements (together with interest on the unamortized 7 balance at the rate equal to the effective rate of interest on Lessor's bank line of credit at the time of completion of said improvements, but in no event in excess of ten percent (10%) per annum) as an Operating Expense in accordance with standard accounting practices, except that with respect to capital improvements made to save Operating Expenses such amortization shall not be at a rate greater than the anticipated savings in Operating Expenses. Operating Expenses shall also include any other expense or charge, whether or not described herein not specifically excluded by other provisions of this Lease, which in accordance with generally accepted accounting and management practices would be considered an expense of managing, operating, maintaining, and repairing the Complex. (d) Real property taxes and assessments upon the Complex, during each lease year or partial lease year during the term of this Lease are referred to herein as "Taxes." As used herein, "Taxes" shall mean: (1) all real estate taxes, assessments and any other taxes levied or assessed against the Complex including the underlying realty, the Building, all improvements located thereon, and the Hetch Hetchy Lease area (together with any increase in Taxes resulting from a reassessment following any transfer of ownership of the Complex); and (2) all other taxes which may be levied in lieu of real estate taxes, assessments, and other fees, charges, and levies, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature by any authority having the direct or indirect power to tax, including without limitation any governmental authority or any improvement or other district or division thereof, for public improvements, services, benefits, or environmental matters which are assessed, levied, confirmed, imposed, or become a lien (i) upon the Complex, and/or any legal or equitable interest of Lessor in any part thereof; or (ii) upon this transaction or any document to which Lessee is a party creating or transferring any interest in the premises; and (iii) any tax or excise, however described, imposed in addition to, or in substitution partially or totally of, any tax previously included within the definition of "Taxes" or any tax the nature of which was previously included in the definition "Taxes." Not included within the definition of "Taxes" are any net income, profits, transfer, franchise, capital stock, estate or inheritance taxes imposed by any governmental authority; late payment penalties or interest, provided that Lessee is not in default in the payment of Monthly Base Rent or Additional Rent; or any increase in Taxes which are the result of leasehold improvements for another tenant of the Complex which are substantially in excess of building standard improvements. 8 With respect to any assessments which may be levied against or upon the Complex, or the underlying realty thereof, which under the laws then in force may be evidenced by improvement or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration of any partial year) and statutory interest shall be included within the computation of the annual Taxes levied against the Complex, the Building and improvements thereon, and the underlying realty thereof. (e) The following costs ("Costs") shall be excluded from the definition of Operating Costs, and no portion of the Lessee Improvement Allowance or Additional Lessee Improvement Allowance be applied to such Costs: (1) Costs occasioned by the act, omission or violation of law by Lessor, any other occupant of the Complex, or their respective agents, employees or contractors. (2) Costs for which Lessor has a right of reimbursement from others. (3) Costs (i) arising from the disproportionate use of any utility or service supplied by Lessor to any other occupant of the Complex, or (ii) associated with utilities and services of a type not provided to Lessee. (4) The cost of any renovation, improvement, painting or redecorating of any portion of the Complex not a common area or not made available for Lessee's use in common with other Tenants. (5) Fees, commissions, attorneys' fees, costs or other disbursements incurred in connection with negotiations or disputes with any other occupant of the Complex and costs arising from the violation by Lessor or any occupant of the Complex (other than Lessee) of the terms and conditions of any lease or other agreement. (6) Depreciation, amortization or other expense reserves. (7) Interest, charges and fees incurred on debt, payments on mortgages and rent under ground leases (except for the rent payable under the Hetch Hetchy Lease for additional parking in the Complex). (8) Costs incurred in connection with the operation of any parking or commercial concession within the Complex. (9) Advertising or promotional costs. 9 (10) Amortization of the cost of improvements by Lessor to the Building or to the Complex which would properly be capitalized under generally accepted accounting principles, except to the extent that Lessee's share of such cost during any twelve-month period of this Lease is equitably determined based on Lessee's usage and amortized over the useful life of the capital item in question. (11) Costs incurred in repairing, maintaining or replacing any structural elements of the Building and the Complex for which Lessor is responsible pursuant to Paragraph 14(a) hereof. (12) Lease payments for capital machinery and equipment, such as air conditioners, elevators, and the like. (13) (i) Insurance costs for coverage not customarily paid by tenants of similar projects in the vicinity of the premises, (ii) increases in insurance costs caused by activities of another occupant of the Complex, (iii) insurance deductibles in excess of $10,000 on all casualty insurance other than earthquake, and (iv) earthquake insurance annual premium in excess of Thirty Thousand Dollars ($30,000) for 1996, increased by not more than five percent (5%) per year thereafter, provided that the portion of the earthquake insurance deductible in excess of $10,000 shall be amortized over the useful life of the improvement restored and the earthquake insurance deductible shall not exceed ten percent (10%) of the replacement cost. (14) Costs of sculptures, paintings and other art objects. (15) Costs incurred to investigate the presence of any Hazardous Material, costs to respond to any claim of Hazardous Material contamination or damage, costs to remove any Hazardous Material from the Complex and any judgments or other costs incurred in connection with any Hazardous Material exposure or releases, except to the extent resulting from the breach by Lessee of any provision of this Lease or caused by the storage, use, release or disposal of the Hazardous Material in question by Lessee or by any employee, agent, or contractor of Lessee. (16) Any executive salary of any officer or employee of Lessor, or any fee, profit or compensation retained by Lessor or its affiliates for management and administration of the Complex in excess of the maximum sum specified in Paragraph 6(c) of this Lease. (17) General corporate overhead and general and administrative expenses of Lessor, except as specifically provided in Paragraph 6(c). 10 (18) Leasing expenses and broker commissions payable by Lessor; (19) The cost of maintenance and repair work at the Complex to repair damage or loss caused by risk a or casualty for which Lessor is obligated to carry insurance pursuant to Paragraph 11(b) (excluding earthquake or flood). (20) Costs and expenses for which Lessee reimburses Lessor directly or which Lessee pays directly to a third person. (f) As close as reasonably possible to the end of each calendar year commencing with the calendar year 1996, Lessor shall notify Lessee of any increases in Operating Expenses and/or Taxes over Base Operating Expenses and Base Taxes estimated by Lessor for the following calendar year. Commencing on the first day of January of each calendar year after 1996 for which Lessor has estimated increases in Operating Expenses and/or Taxes, and on the first day of every month thereafter in such year, Lessee shall pay to Lessor, as Additional Rent, one-twelfth (1/12th) of Lessee's Share of the estimated increases. If at any time during any such calendar year, it appears to Lessor that the Operating Expenses or Taxes for such year will vary from Lessor's estimate, Lessor may, by written notice to Lessee, revise Lessor's estimate for such year and the Additional Rent payments by Lessee for such year shall thereafter be based upon such revised estimate. Lessor shall furnish to Lessee with such revised estimate written verification showing that the actual Operating Expenses or Taxes are greater than Lessor's estimate. The increase in the monthly installments of Additional Rent resulting from Lessor's revised estimate shall not be retroactive, but the Additional Rent for each calendar year shall be subject to adjustment between Lessor and Lessee after the close of the calendar year, as provided below. As soon as possible after each calendar year for which Lessee has made estimated payments or is liable for increases in Operating Expenses and/or Taxes, Lessor shall furnish Lessee a statement (the "Operating Statement") with respect to such year, prepared by an employee or agent of Lessor, showing Operating Expenses and Taxes, the increase in Operating Expenses and/or Taxes over Base Operating Expenses and/or Base Taxes, Lessee's Share of such increase, and the total payments made by Lessee on the basis of any previous estimate of such increases. Unless Lessee raises any objections to the Operating Statement within ninety (90) days after receipt of the same, such statement shall conclusively be deemed correct and Lessee shall have no right thereafter to dispute such statement or any item therein or the computation of increases of Operating Expenses. If Lessee does object to such statement, Lessor shall provide Lessee with reasonable verification of the figures shown on the statement and the parties agree to negotiate in good faith to resolve any disputes. If Lessee and Lessor cannot reach agreement within fifteen 11 (15) days after Lessee's objection, the Operating Statement shall be reviewed by an independent certified public accountant reasonably acceptable to both parties who shall be appointed within thirty (30) days of the expiration of such fifteen (15) day period, whose determination as to the actual Operating Expenses shall be made within thirty (30) days of appointment and shall be final and binding upon the parties and whose fees and expenses shall be borne (1) entirely by Lessor if Lessee's Share of the Operating Expenses shown on Lessor's Operating Statement is one hundred five percent (105%) or more of Lessee's Share of Operating Expenses as determined by the accountant; (2) one-half by Lessor and one-half by Lessee if the overcharge of Lessee on Lessor's Operating Statement is less than five percent (5%) but more than one percent (1%); or (3) entirely by Lessee if the overcharge of Lessee on Lessor's Operating Statement is one percent (1%) or less. Any amounts due Lessor or Lessee shall be paid in the manner set forth below. If Lessee objects to Lessor's Operating Statement, Lessee shall continue to pay on a monthly basis Lessee's share of the increase in Operating Expenses based upon the prior year's Operating Statement until the dispute is resolved as provided above. If Lessee's Share for the year as finally determined exceeds the total payments made by Lessee based on Lessor's estimates, Lessee shall pay to Lessor the deficiency, including Lessee's share of the cost of the audit, within fifteen (15) days after Lessee's receipt of Lessor's Operating Statement. If the total payments made by Lessee based on Lessor's estimate of the increases in Operating Expenses and/or Taxes exceed Lessee's Share of the increases, as determined by Lessor, Lessee's extra payment (but not more than Lessee's Share of such increases) shall be credited against payments of Additional Rent next due hereunder. Notwithstanding the termination of this Lease, within thirty (30) days after Lessee's receipt of Lessor's Operating Statement regarding the determination of increases in Operating Expenses and/or Taxes for the calendar year in which this Lease terminates, Lessee shall pay to Lessor or shall receive from Lessor, as the case may be, an amount equal to the difference between Lessee's Share (prorated to the expiration date or the termination date of this Lease) of the increases in Operating Expenses and/or Taxes for such year, as finally determined by Lessor, and the amount previously paid by Lessee toward such increases. 7. PAYMENT OF RENT. (a) All rent shall be due and payable in lawful money of the United States of America at the address of Lessor set forth in Paragraph 24, "Notices," without deduction or offset and without prior demand or notice, unless otherwise specified herein. Monthly Base Rent and Additional Rent shall be payable monthly, in advance, on the first day of each calendar month. Lessee's obligation to pay rent for any partial month at the commencement 12 of the lease term shall be as provided in Paragraph 5(a) hereof and rent for any partial month at the expiration or termination of the lease term shall be prorated on the basis of a thirty (30) day month. (b) If any installment of Monthly Base Rent, Additional Rent or any other sum due from Lessee is not received by Lessor within five (5) days after Lessor's notice to Lessee that such amount has not been received when due, Lessee shall pay to Lessor an additional sum equal to five percent (5%) of the amount overdue as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of the late payment by Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee's default with respect to the overdue amount. Any amount not paid within ten (10) days after Lessee's receipt of written notice that such amount is due shall bear interest from the date due until paid at the lesser rate of (i) the prime rate of interest plus one percent (1%) or (ii) the maximum rate allowed by law in addition to the late payment charge. Initials: Lessor WFB Lessee JM 8. USE. Lessee shall use and occupy the premises for general office use and for such other lawful purposes reasonably related thereto which are permitted by applicable zoning regulations, and for no other use or purpose without Lessor's prior written consent. Lessor warrants to Lessee that under zoning laws in effect as of the Commencement Date of this Lease the premises may be used by Lessee for general office use. 9. HAZARDOUS MATERIALS. (a) Lessor represents and warrants to Lessee to the best of Lessor's actual knowledge without having made any independent investigation (1) that any use, storage, treatment or transportation of "Hazardous Materials" (as defined below) which has occurred in or on the premises, the Building or the Complex prior to the date hereof has been in substantial compliance with all applicable federal, state, and local laws, regulations and ordinances; (2) that no release, leak, discharge, spill, disposal or emission of Hazardous Materials has occurred in, on or under the premises, the Building or the Complex; and (3) that the premises, the Building and the Complex are free of Hazardous Materials as of the date hereof and will be free of Hazardous Materials upon the commencement of the term of this Lease. As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic substance, material or waste which is or becomes regulated by any local environmental authority, the State of California or the United States government. 13 (b) Lessor shall indemnify, defend and hold Lessee harmless from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) arising before, during or after the term (as such may be extended) from or in connection with the presence of Hazardous Materials in or on the premises, the Building or the Complex, unless the (1) Hazardous Materials are present in whole or in part as a result of the breach of this Lease, negligence, willful misconduct, or other acts of Lessee, Lessee's agents, employees, contractors or invitees; or (2) such Hazardous Materials are present in whole or in part as a result of the acts or omissions of other tenants or occupants of the Complex or their agents, employees, contractors, or invitees, or (3) such Hazardous Materials have flowed, diffused, migrated, or percolated into, onto, or under the premises, the Building, or the Complex from other property. Without limitation of the foregoing, this indemnification shall include any and all costs incurred due to any investigation of the site or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision, unless the Hazardous Materials are present solely as a result of negligence, willful misconduct or other acts of Lessee, Lessee's agents, employees, contractors or invitees. This indemnification shall specifically include any and all costs due to Hazardous Materials which flow, diffuse, migrate or percolate into, onto or under the premises, the Building or the Complex after the term commences and this indemnification shall survive the expiration or earlier termination of this Lease. (c) Lessee and Lessee's agents, employees, and contractors shall not cause any Hazardous Materials to be discharged into the plumbing or sewage system of the Building or into or onto the land underlying or adjacent to the Building in violation of any applicable law. Lessee shall indemnify, defend and hold Lessor harmless from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) arising during or after the term (as such may be extended) from or in connection with the presence of Hazardous Materials in or on the premises, the Building or the Complex as a result of the breach of the foregoing covenant, or as a result of the negligence, willful misconduct or other acts of Lessee, Lessee's agents, employees, and contractors or invitees. Without limitation of the foregoing, this indemnification shall include any and all costs incurred due to any investigation of the site or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. 10. TAXES ON LESSEE'S PROPERTY. Lessee shall pay before delinquency any and all taxes, assessments, license fees, and public charges levied, assessed, or imposed and which become payable during the initial lease term and any extension thereof upon Lessee's equipment, fixtures, furniture, and personal property installed or located in the premises. 14 11. INSURANCE. (a) Lessee shall, at Lessee's sole cost and expense, provide and keep in force during the initial lease term and any extension thereof, and for the benefit of Lessor and Lessee, a general liability insurance policy with a recognized casualty insurance company qualified to do business in California, insuring Lessor and Lessee against any and all liability occasioned by any occurrence in, on, about, or related to the premises, or arising out of the condition, use, occupancy, alteration or maintenance of the premises, having a combined single limit for both bodily injury and property damage in an amount not less than Two Million Dollars ($2,000,000). Lessee agrees to furnish certificates of insurance to Lessor naming Lessor as an additional insured upon the written request of Lessor. (b) Lessor shall obtain and carry in Lessor's name, as insured, as an Operating Expense of the Complex as provided in Paragraph 6(c), during the initial lease term and any extended term, standard fire and extended coverage insurance (with rental loss insurance coverage for a period of one year), public liability and property damage insurance, and insurance against such other risks or casualties as Lessor shall determine, including, but not limited to, earthquake insurance, insuring Lessor's interest in the Complex (including leasehold improvements installed at Lessor's expense) in an amount not less than the full replacement cost of the Building and improvements from time to time. The proceeds of any such insurance shall be payable solely to Lessor and Lessee shall have no right or interest therein. Lessor shall have no obligation to insure against loss by Lessee to Lessee's leasehold improvements installed at Lessee's expense, or Lessee's equipment, fixtures, furniture, or other personal property of Lessee in or about the premises occurring from any cause whatsoever. (c) The parties release each other, and their respective authorized representatives, from any claims for damage to any person or to the premises and to the fixtures, personal property, Lessee's improvements, and alterations of either Lessor or Lessee in or on the premises that are caused by or result from risks required by this Lease to be insured against or actually insured against under any insurance policies carried by the parties and in force at the time of any such damage. Lessor shall not be required to maintain plate glass insurance. (d) Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. 15 If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 12. INDEMNIFICATION. (a) Lessee waives all claims against Lessor for damages to property, or to goods, wares, and merchandise stored in, upon, or about the premises, and for injuries to persons in, upon, or about the premises from any cause arising at any time, except as may be caused by the negligence or willful misconduct of Lessor or its employees, agents or contractors. Lessee agrees to indemnify and hold Lessor exempt and harmless from and against any and all claims for damage or injury to any person or property arising from the use or occupancy of the premises by Lessee or from the failure of Lessee to keep the premises in good condition as herein provided, unless caused by the negligence or willful misconduct of Lessor or its employees, agents, or contractors. (b) Except as may be caused by the negligence or willful misconduct of Lessor or its employees, agents, or contractors, Lessor shall not be liable to Lessee for any damage because of any act or negligence of any owner or occupant of adjoining or contiguous property, nor for overflow, breakage, or leakage of water, steam, gas, or electricity from pipes, wires, or otherwise. Except as otherwise herein provided, Lessee will pay for damage to the premises caused by the misuse or neglect of the premises by Lessee or its employees, agents, or contractors, including, but not limited to, the breakage of glass in the premises. Any damage to the premises caused by other tenants shall be paid for by such other tenants or by Lessor. 13. CONSTRUCTION OF LEASEHOLD IMPROVEMENTS. (a) Prior to commencement of the initial lease term and prior to the occupancy of the premises by Lessee, Lessor shall cause to be constructed and completed at Lessor's expense the leasehold improvements to the premises described on Exhibit "C" attached hereto and incorporated by reference herein. Lessor shall cause such improvements 16 to be constructed promptly and diligently in a first class and workmanlike manner. Lessor hereby represents and warrants to Lessee and covenants that the premises (upon completion of such buildout), the Building, the parking area and all other common areas appurtenant to the Building are and shall be, as of the Commencement Date, in substantial compliance with all applicable laws, ordinances, orders, regulations, and codes, except that with respect to the Americans with Disabilities Act Lessor represents and warrants to Lessee and covenants only that Lessor has made a good faith effort to cause the premises, the Building, the parking area, and the common areas appurtenant to the Building to comply therewith. (b) Subject to the provisions of Paragraph 2(c) hereof, by accepting possession of the premises Lessee shall be deemed to have acknowledged that the premises are in good order and satisfactory condition, except as provided for elsewhere in this Lease. Lessee waives all right to make repairs at the expense of Lessor or to deduct the cost thereof from the rent, and Lessee waives all, rights under Section 1941 and 1942 of the Civil Code of the State of California. At the termination of this Lease, Lessee shall surrender the premises in a clean and good condition, except for ordinary wear and tear and except for damage caused by casualty, the elements, or acts of God. 14. MAINTENANCE AND REPAIRS; ALTERATIONS. (a) Lessor shall, at Lessor's sole expense, keep in good order, condition, and repair and replace when necessary, the roof, and the structural elements of the foundation and exterior walls (except the interior faces thereof), of the Building, and other structural elements of the Building and the Complex as "structural elements" are defined in building codes applicable to the Building. (b) Lessor shall repair and maintain, as an Operating Expense pursuant to Paragraph 6 hereof, the exterior entrances, all glass and window moldings, and the common areas of the Building, and all partitions, doors, door jambs, door closers, door hardware, fixtures, equipment, and appurtenances thereof, including all electrical, lighting, heating, plumbing, and air conditioning systems serving the premises, except for reasonable use and wear and except for any damage caused by any act or negligence of Lessee or its employees, agents, invitees, licensees, or contractors. In the event Lessee provides Lessor with written notice of the need for any repairs, Lessor shall commence any such repairs promptly following receipt by Lessor of such notice and Lessor shall diligently prosecute such repairs to completion. Lessor shall execute and maintain in force a service contract with an authorized air conditioning service company and shall provide five-day a week janitorial service to the premises. Lessor shall also repair and maintain as an Operating Expense pursuant to Paragraph 6 hereof, the Outside Areas of the Complex, including the landscaping, walkways, and parking area. 17 (c) Subject to the foregoing and except as provided elsewhere in this Lease, Lessee shall at all times at Lessee's expense keep the premises in good and safe order, condition, and repair. Subject to the release of claims and waiver of subrogation contained in Paragraphs 11 (c) and 11 (d), if Lessor is required to make any repairs by reason of Lessee's negligent acts or omission to act, Lessor may add the cost of such repairs to the next installment of rent which shall thereafter become due, and Lessee shall promptly pay the same upon receipt of an invoice therefor. Lessor shall exercise its good faith diligent efforts to construct all Lessee Interior Improvements so that the Building and the premises substantially comply with the Americans With Disabilities Act ("ADA"). Lessor shall hold Lessee harmless from any responsibility or cost related to compliance with ADA, except for any alterations or additions to the premises made by Lessee at Lessee's expense. (d) Following completion of construction of the leasehold improvements pursuant to Paragraph 13 hereof, Lessee shall not make any additional alterations, improvements, or additions to the premises without obtaining Lessor's prior written consent thereto. Lessor may condition its consent to Lessee agreeing to remove any such alterations upon expiration of the lease term and Lessee agreeing to restore the premises to its condition prior to such alterations at Lessee's expense. Lessor shall advise Lessee in writing at the time consent is granted whether Lessor reserves the right to require Lessee to remove any alterations from the premises upon termination of this Lease or else Lessor shall be deemed to have waived such right with respect to such alterations. Notwithstanding the preceding subparagraph to the contrary, Lessee shall have the right to remove any of Lessee's leasehold improvements which were paid for solely by Lessee, and provided that Lessee notifies Lessor in writing prior to the installation on the premises of such leasehold improvements that Lessee intends to remove such improvements upon the expiration of the lease term. In the event of Lessee's removal of such leasehold improvements, Lessee at Lessee's expense, shall immediately repair any damage to the premises caused by such removal. All alterations, trade fixtures and personal property installed in the premises solely at Lessee's expense ("Lessee's Property) shall at all times remain Lessee's property and Lessee shall be entitled to all depreciation, amortization and other tax benefits with respect thereto. Except for alterations, trade fixtures and personal property which cannot be removed without structural injury to the premises, at any time Lessee may remove Lessee's trade fixtures and personal property from the premises, provided Lessee repairs all damage caused by such removal. 18 Lessor shall execute and deliver to Lessee upon request a lieu waiver relating to Lessee's Property in form approved by Lessor and its counsel, provided that such lieu waiver is consistent with the foregoing provisions of this Paragraph 14(d). (e) Lessee, at Lessee's sole cost and expense, shall promptly and properly observe and comply with all present and future orders, regulations, rules, laws, and ordinances of all governmental agencies or authorities, and the Board of Fire Underwriters, except that Lessee shall not be required to make any structural changes or repairs or other repairs or changes of any nature which would be considered a capital expenditure under generally accepted accounting principles to the premises at Lessee's expense unless such structural repairs or changes are required by reason of the specific nature of the use of the premises by Lessee. 15. UTILITIES. (a) Lessor shall, as an Operating Expense of the operation of the Building pursuant to Paragraph 6(c) hereof, provide reasonable quantities of electricity, gas, water, heat and air conditioning service Monday through Friday during business hours from 8:00 a.m. to 6:00 p.m., except recognized holidays, five-day a week janitorial service (comparable to janitorial service provided in other Class A office buildings in the vicinity of the Complex), and refuse pick- up service to the premises. Lessee, at its option, may contract for its own janitorial service for Lessee's premises, provided that such service is performed on a regular basis by a recognized professional janitorial service firm. In such event, Lessor shall no longer bill Lessee for janitorial services to the premises. Lessor shall provide Lessee and the premises with electricity (overhead lighting and electrical outlets) without Lessee incurring any hourly charges therefor. (b) Lessor shall provide Lessee and the premises with heating and air conditioning service, in addition to the hours set forth in subparagraph (a) above, to the extent that such service is requested by Lessee. In the event of such a request by Lessee, Lessee shall pay to Lessor monthly with Operating Expenses Lessor's charge for such additional heating and air conditioning service. Lessor's charge may be based on an hourly rate, which may include a reasonable depreciation factor or replacement reserve for the system on account of said additional hours of operation. As of the Commencement Date Lessor is charging additional heating and air conditioning service at a minimum of Twenty-five Dollars ($25.00) per hour for each pod/wing of the Building. Lessor agrees that such hourly rate shall be established at an amount which will reimburse Lessor for the actual cost to Lessor to supply the service plus a reasonable reserve for depreciation or replacement of the HVAC equipment, but without a profit to Lessor. 19 (c) Lessor shall not be liable to Lessee for any interruption or failure of any utility services to the Building or the premises which is not caused by Lessor's willful acts or gross negligence; provided however, that if service to the premises is interrupted for more than four (4) consecutive business days, Lessee's Monthly Base Rent shall be abated proportionately on a daily basis until service is restored. 16. LIENS. Lessee agrees to keep the premises and the Complex free from all liens arising out of any work performed, materials furnished, or obligations incurred by Lessee. Lessee shall give Lessor at least ten (1O) days prior written notice before commencing any work of improvement on the premises. Lessor shall have the right to post notices of non-responsibility with respect to any such work. 17. ASSIGNMENT AND SUBLETTING. (a) Lessee shall not assign this Lease, or any interest, voluntarily or involuntarily, and shall not sublet the premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the premises, or any portion thereof, without the prior written consent of Lessor in each instance pursuant to the terms and conditions set forth below, which consent shall not be unreasonably withheld. (b) Prior to any assignment or sublease which Lessee desires to make, Lessee shall provide to Lessor the name and address of the proposed assignee or sublessee, and true and complete copies of all documents relating to Lessee's prospective agreement to assign or sublease, a copy of a current financial statement for such proposed assignee or sublessee, and shall specify all consideration to be received by Lessee for such assignment or sublease in the form of lump sum payments, installments of rent, or otherwise. For purposes of this Paragraph 17, the term "consideration" shall include all money or other consideration to be received by Lessee for such assignment or sublease. Within fifteen (15) days after the receipt of such documentation and other information, Lessor shall (1) notify Lessee in writing that Lessor elects to consent to the proposed assignment or sublease subject to the terms and conditions hereinafter set forth, or (2) notify Lessee in writing that Lessor refuses such consent, specifying reasonable grounds for such refusal. In deciding whether to consent to any proposed assignment or sublease, Lessor may in its sole discretion consider the following criteria: (1) In Lessor's reasonable judgment, the proposed assignee or subtenant is engaged in such a business, that the premises, or the relevant part thereof, will be used in such a manner which complies with Paragraph 8 hereof entitled "Use." 20 (2) The proposed assignee or subtenant is a reputable entity or individual with sufficient financial net worth so as to reasonably indicate that it will be able to meet its obligations under this Lease or the sublease in a timely manner; (3) The proposed assignee or subtenant is not a person or entity with whom Lessor is then negotiating to lease space in the Building; and (4) The proposed assignment or sublease shall be in form reasonably satisfactory to Lessor and Lessor's counsel. (c) As a condition to Lessor's granting its consent to any assignment or sublease, (1) Lessor may require that Lessee pay to Lessor, as and when received by Lessee, fifty percent (50%) of the amount of any excess of the consideration to be received by Lessee in connection with said assignment or sublease over and above the rental amount fixed by this Lease and payable by Lessee to Lessor, after deducting actual marketing costs and reasonable costs of repair or rehabilitation of the premises and tenant improvement costs incurred by Lessee in consummating such assignment or sublease; (2) Lessee and the proposed assignee or sublessee shall demonstrate to Lessor's reasonable satisfaction that each of the criteria referred to in subparagraph (b) above is satisfied; and (3) Lessor may require a cash security deposit to be paid to Lessor by an assignee in the amount of one month's Basic Rent, unless Lessor is then holding the security deposit referred to in Paragraph 4. (d) Each assignment or sublease agreement to which Lessor has consented shall be an instrument in writing in form satisfactory to Lessor, and shall be executed by both Lessee and the assignee or sublessee, as the case may be. Each such assignment or sublease agreement shall recite that it is and shall be subject and subordinate to the provisions of this Lease, that the assignee or sublessee accepts such assignment or sublease and, except as otherwise set forth in a sublease approved by Lessor, agrees to perform all of the obligations of Lessee hereunder (to the extent such obligations relate to the portion of the premises assigned or subleased), and that the termination of this Lease shall, at Lessor's sole election, constitute a termination of every such assignment or sublease. (e) In the event Lessor shall consent to an assignment or sublease, Lessee shall nonetheless remain primarily liable for all obligations and liabilities of Lessee under this Lease, including but not limited to the payment of rent. Lessee agrees to reimburse Lessor upon demand for reasonable attorneys' fees incurred by Lessor in connection with the negotiation, review, and documentation of any such requested assignment or sublease not to exceed $1,000. 21 (f) Lessee hereby stipulates that the foregoing terms and conditions are reasonable. (g) Any dissolution, or the transfer, either all at once or in a series of related transfers, of a controlling percentage of the capital stock of Lessee, or the sale, or series of sales within any one (1) year period, of all or substantially all of Lessee's assets located in, on, or about the premises, shall be deemed an assignment. The phrase "controlling percentage" means the ownership of, and the right to vote, stock possessing at least fifty-one percent (51%) of the total combined voting power of all classes of Lessee's capital stock issued, outstanding, and entitled to vote for the election of directors. Notwithstanding the foregoing, Lessee shall have the right to assign, sublease, transfer to a subsidiary, parent, or affiliated company or to a successor by merger, subject to the provisions of subparagraph (i) below. (h) Any assignment or subletting described in subparagraph (g) above shall be subject to the provisions for assignment and subletting set forth in this Paragraph 17. (i) Notwithstanding the foregoing, Lessee may, without Lessor's prior written consent and without any participation by Lessor in assignment and subletting proceeds, sublet the premises or assign this Lease to: (1) a subsidiary, affiliate, division or corporation controlled or under common control with Lessee; (2) a successor corporation related to Lessee by merger, consolidation, nonautomatic reorganization, or government action; or (3) a purchaser of substantially all of Lessee's assets located in the premises. Lessee's foregoing rights to assign this Lease shall be subject to the following conditions: (1) Lessee shall not be in default hereunder; (2) the transferee or successor entity shall expressly assume Lessee's obligations hereunder; and (3) Lessor may require that the transferee or successor entity post a security deposit in an amount equal to the Monthly Base Rent then in effect hereunder to assure performance of its obligations hereunder, unless Lessor is then holding the security deposit referred to in Paragraph 4. For the purpose of this Lease, sale of Lessee's capital stock through any public offering shall not be deemed an assignment, subletting, or any other transfer of the Lease or the premises. Lessor's consent to any proposed assignment or subletting shall not be unreasonably withheld. (j) Subject to the provisions of this Paragraph 17, any assignment or sublease without Lessor's prior written consent shall at Lessor's election be void, and shall constitute a default by Lessee hereunder. The consent by Lessor to any assignment or sublease shall not constitute a waiver of the provisions of this Paragraph 17, including the requirement of Lessor's prior written consent, with respect to any subsequent assignment or sublease. If Lessee shall purport to assign this Lease, or sublease all or any portion of the premises, or permit any person or persons other than Lessee to occupy the premises, without 22 Lessor's prior written consent, Lessor may collect rent from the person or persons then or thereafter occupying the premises and apply the net amount collected to the rent reserved herein, but no such collection shall be deemed a waiver of Lessor's rights and remedies under this Paragraph 17, or the acceptance of any such purported assignee, sublessee, or occupant, or a release of Lessee from the further performance by Lessee of covenants on the part of Lessee herein contained. (k) Lessee shall not hypothecate or encumber its interest under this Lease or any rights of Lessee hereunder, or enter into any license or concession agreement respecting all or any portion of the premises, without Lessor's prior written consent which consent shall not unreasonably be withheld, subject to the terms and conditions referred to in Paragraph 17(c) above, and Lessee's granting of any such encumbrance, license, or concession agreement shall constitute an assignment for purposes of this Paragraph 17. (l) In the event of any sale or exchange of the premises by Lessor and assignment of this Lease by Lessor, Lessor shall, upon providing Lessee with written confirmation that Lessor has delivered any security deposit held by Lessor to Lessor's successor in interest, be and hereby is entirely relieved of all liability under any and all of Lessor's covenants and obligations contained in or derived from this Lease with respect to the period commencing with the consummation of the sale or exchange and assignment. (m) The parties acknowledge that Lessor has the remedy described in California Civil Code Section 1951.4 (Lessor may continue the Lease in effect after Lessee's breach and abandonment and recover rent as it becomes due, if Lessee has right to sublet or assign, subject only to reasonable limitations.) 18. WAIVER. The waiver by Lessor or Lessee of any breach of any term, covenant, or condition contained herein shall not be deemed to be a waiver of such term, covenant, or condition of any subsequent breach of the same or any other term, covenant or condition contained herein. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant, or condition of this Lease, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 19. HOLDING OVER. Lessee shall vacate the premiscs and deliver the same to Lessor upon the expiration or sooner termination of this Lease. In the event of holding over by Lessee after the expiration of termination of this Lease, such hold over shall be on a month-to-month tenancy and all of the terms and provisions of this Lease shall be applicable during such period, except that Lessee shall pay Lessor as Monthly Base Rent during such 23 holdover an amount equal to one hundred twenty-five percent (125%) of the Monthly Base Rent in effect at the expiration of the term. If such holdover is without Lessor's written consent, Lessee shall be liable to Lessor for all costs, expenses, and consequential damages incurred by Lessor as a result of such holdover. The rental payable during such holdover period shall be payable to Lessor on demand. 20. DAMAGE OR DESTRUCTION. (a) In the event of a total destruction of the Building and improvements during the lease term from any cause, either party may elect to terminate this Lease by giving written notice of termination to the other party within thirty (30) days after the casualty occurs. A total destruction shall be deemed to have occurred for this purpose if the Building and improvements of the Complex are destroyed to the extent of seventy-five percent (75%) or more of the replacement cost thereof. If the Lease is not terminated, Lessor shall repair and restore the premises in a diligent manner and this Lease shall continue in full force and effect, except that Monthly Base Rent and Additional Rent shall be abated in accordance with Paragraph 20(e) below. (b) In the event of a partial destruction of the Building and improvements of the Complex to an extent not exceeding twenty-five percent (25%) of the replacement cost thereof and if the damage thereto can be repaired, reconstructed, or restored within a period of one hundred twenty (120) days from the date of such casualty, and if the casualty is from a cause which is insured under Lessor's fire and extended coverage insurance, or is insured under any other coverage then carried by Lessor, and Lessor receives proceeds of insurance sufficient to repair and restore the Building and improvements, Lessor shall forthwith repair the same, and this Lease shall continue in full force and effect, except that Monthly Base Rent and Additional Rent shall be abated in accordance with Paragraph 20(e) below. If any of the foregoing conditions is not met, Lessor shall have the option of either repairing and restoring the Building and improvements, or terminating this Lease by giving written notice of termination to Lessee within thirty (30) days after the casualty, subject to the provisions of Paragraph 20(d). (c) In the event of a partial destruction of the Building and improvements of the Complex to an extent equal to or exceeding twenty-five percent (25%) but less than seventy-five percent (75%) of the replacement cost thereof, or if the damage thereto cannot be repaired, reconstructed, or restored within a period of one hundred eighty (180) days from the date of such casualty, either Lessor or Lessee may terminate this Lease by giving written notice of termination to the other within thirty (30) days after the casualty. 24 Furthermore, if such casualty is from a cause which is not insured under Lessor's fire and extended coverage insurance, or is not insured under any other insurance carried by Lessor, or if the proceeds of insurance received by Lessor are not sufficient to repair and restore the Building and improvements, Lessor may elect to repair and restore the Building and improvements (provided that Lessee has not elected to terminate this Lease pursuant to the first sentence of this Paragraph 20(c)), or Lessor may terminate this Lease by giving written notice of termination to Lessee. Lessor's election to repair and restore the Building and improvements or to terminate this Lease, shall be made and written notice thereof shall be given to Lessee within thirty (30) days after the casualty. Notwithstanding the foregoing, (1) if Lessor has not obtained all necessary governmental permits for the restoration and commenced construction of the restoration within ninety (90) days after the casualty, Lessee may terminate this Lease by written notice to Lessor given at any time prior to the actual commencement of construction of the restoration; or (2) if Lessor elects to repair and restore the Building and improvements under subparagraph (b) or (c) above, but the repairs and restoration are not substantially completed within one hundred eighty (I 80) days after the casualty, Lessee may terminate this Lease by written notice to Lessor given within thirty (30) days after the expiration of said period of one hundred eighty (180) days after the casualty. If this Lease is not terminated by Lessor or Lessee pursuant to the foregoing provisions, Lessor shall complete the repairs in a diligent manner and this Lease shall continue in full force and effect, except that Monthly Base Rent and Additional Rent shall be abated in accordance with Paragraph 20(e) below. (d) In the case of damage which is not required to be covered by insurance, or in case the casualty is covered by insurance but the proceeds are insufficient to cover the entire cost of restoration, Lessor shall not have the right to terminate this Lease, (i) if repair or restoration would cost less than two percent (2%) of the replacement cost of the Building, or (ii) if Lessee agrees to pay the cost of repair in excess of two percent (2%) of the replacement cost and Lessee delivers said sum to Lessor within ten (10) days after receipt of a written request therefor from Lessor. (e) In the event of repair, reconstruction, or restoration as provided herein, the Monthly Base Rent and Additional Rent shall be abated proportionally in the ratio which the Lessee's use of the premises is impaired during the period of such repair, reconstruction, or restoration. (f) With respect to any destruction of the Complex which Lessor is obligated to repair, or may elect to repair, under the terms of this Paragraph 20, the provisions of Section 1932, Subdivision 2, and of Section 1933, Subdivision 4, of the Civil 25 Code of the State of California are waived by the parties. Lessor's obligation to repair and restore the Complex shall be limited to the improvements originally constructed by Lessor at Lessor's expense. Lessee shall repair or replace, at Lessee's expense, all leasehold improvements, fixtures, and equipment installed by Lessee or paid for by Lessee. Lessor's time for completion of the repairs and restoration of the Complex shall be extended by a period equal to any delays caused by strikes, labor disputes, unavailability of materials, inclement weather, acts of God, or other causes beyond Lessor's control. (g) In the event of termination of this Lease pursuant to any of the provisions of this Paragraph 20, the monthly rent shall be apportioned on a per diem basis and shall be paid to the date of the casualty. In no event shall Lessor be liable to Lessee for any damages resulting to Lessee from the occurrence of such casualty, or from the repairing or restoration of the Building and improvements, or from the termination of this Lease as provided herein, nor shall Lessee be relieved thereby from any of Lessee's obligations hereunder, except to the extent and upon the conditions expressly set forth in this Paragraph 20. 21. EMINENT DOMAIN. (a) If the whole or any substantial part of the building or appurtenant real property owned by Lessor shall be taken or condemned by any competent public authority for any public use or purpose, the term of this Lease shall end upon, and not before, the date when the possession of the part so taken shall be required for such use or purpose. Rent shall be apportioned as of the date of such termination. Lessee shall be entitled to receive any damages awarded by the court for (i) leasehold improvements installed at Lessee's expense or other property owned by Lessee, and (ii) reasonable costs of moving by Lessee to another location in the San Francisco Bay Area. The entire balance of the award shall be the property of Lessor. (b) If there is a partial taking of the premises by eminent domain which is not a substantial part of the Building and the balance of the premises remains reasonably suitable for continued use and occupancy by Lessee for the purposes referred to in Paragraph 8, Lessor shall complete any necessary repairs in a diligent manner and this Lease shall remain in full force and effect with a just and proportionate abatement of the Monthly Base Rent and Additional Rent, to reflect the number of square feet of the premises taken and the number of square feet remaining. If after a partial taking, the premises and parking are not reasonably suitable for Lessee's continued use and occupancy for the uses permitted herein, Lessee may terminate this Lease effective on the date possession is taken. Subject to the provisions of Paragraph 21 (a), the entire award for such taking shall be the property of Lessor. 26 22. REMEDIES. If Lessee fails to make any payment of any sum due under this Lease for ten (10) days after receipt by Lessee of written notice from Lessor; or if Lessee breaches any other term of this Lease for thirty (30) days after receipt by Lessee of written notice from Lessor (or for a reasonable time if such default is incapable of cure within thirty (30) days, and if Lessee is diligently proceeding to cure such default); or if Lessee's interest herein, or any part thereof, is assigned or transferred, either voluntarily or by operation of law (except as expressly permitted by other provisions of this Lease); or if Lessee makes a general assignment for the benefit of its creditors; or if this Lease is rejected (i) by a bankruptcy trustee for Lessee, (ii) by Lessee as debtor in possession, or (iii) by failure of Lessee as a bankrupt debtor to act timely in assuming or rejecting this Lease; then any of such events shall constitute a default and breach of this Lease by Lessee and Lessor may, at its option, elect the remedies specified in either subparagraph (a) or (b) below. Any such rejection of this Lease referred to above shall not cause an automatic termination of this Lease. Whenever in this Lease reference is made to a default by Lessee, such reference shall refer to a Lessee's default as defined in this Paragraph 22. (a) Lessor may repossess the premises and remove all persons and property therefrom. If Lessor repossesses the premises because of a breach of this Lease, this Lease shall terminate and Lessor may recover from Lessee: (1) the worth at the time of award of the unpaid rent which had been earned at the time of termination including interest thereon at a rate equal to the Federal discount rate plus one percent (1%) per annum, or the maximum legal rate of interest, whichever is less, from the time of termination until paid; (2) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided, including interest thereon at a rate equal to the Federal discount rate plus one percent (1%) per annum, or the maximum legal rate of interest, whichever is less, from the time of termination until paid; (3) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; and (4) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's breach or by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. 27 (b) If Lessor does not repossess the premises, then this Lease shall continue in effect for so long as Lessor does not terminate Lessee's right to possession and Lessor may enforce all of its rights and remedies under this Lease, including the right to recover the rent and other sums due from Lessee hereunder. For the purposes of this Paragraph 22, the following do not constitute a repossession of the premises by Lessor or a termination of the Lease by Lessor: (1) Acts of maintenance or preservation by Lessor or efforts by Lessor to relet the premises; or (2) The appointment of a receiver by Lessor to protect Lessor's interests under this Lease. 23. LESSEE'S PERSONAL PROPERTY. If any personal property of Lessee remains on the premises after (1) Lessor terminates this Lease pursuant to Paragraph 22 above following a breach of this Lease by Lessee, or (2) after the expiration of the Lease term or after the termination of this Lease pursuant to any other provisions hereof, Lessor shall give written notice thereof to Lessee pursuant to applicable law. Lessor shall thereafter release, store, and dispose of any such personal property of Lessee in accordance with the provisions of applicable law. 24. NOTICES. All notices, statements, demands, requests, or consents given hereunder by either party to the other shall be in writing and shall be personally delivered or sent by United States mail, registered or certified, return receipt requested, postage prepaid, and addressed to the parties as follows: Lessor: W.F. Batton & Co., Inc. 1190 East Meadow Drive Palo Alto, California 94303 Lessee: Novellus Systems, Inc. 3590 North First Street San Jose, California 95134 or to such other address as either party may have furnished to the other as a place for the service of notice. 28 25. ESTOPPEL CERTIFICATE. Lessee and Lessor shall within fifteen (15) days following request by the other party (the "Requesting Party"), execute and deliver to the Requesting Party an estoppel certificate, in the form presented by the Requesting Party (1) certifying that this Lease has not been modified and certifying that this Lease is in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect; (2) stating the date to which the rent and other charges are paid in advance, if at all; (3) stating the amount of any security deposit held by Lessor; (4) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the Requesting Party hereunder, or if there are uncured defaults on the part of the Requesting Party, stating the nature of such uncured defaults; and (5) evidencing the status of this Lease as may be reasonably required either by a lender making a loan to Lessor to be secured by a deed of trust or mortgage encumbering the premises or a purchaser of the premises from Lessor or as reasonably required by the Requesting Party. The responding party's failure to deliver an estoppel certificate within ten(10)days following such request shall be an event of default under this Lease. 26. Parking. Lessee shall have the right to use in common with other tenants or occupants of the Complex Lessee's proportionate share of the parking facilities of the Complex, subject to such rules and regulations for such parking facilities which may be established or altered by Lessor at any time or from time to time during the lease term, provided that such rules and regulations shall not unreasonably interfere with Lessee's parking rights. Vehicles of Lessee or its employees shall not park in driveways or occupy parking spaces or other areas reserved for any use such as handicap parking, visitors, deliveries, or loading. Subject to the foregoing, Lessee shall be entitled to the non-exclusive use of twenty-three (23) parking spaces based upon Lessee's occupancy of Six Thousand Two Hundred Sixty-eight (6,268) rentable square feet (3.68 x 6,268). 27. REAL ESTATE BROKERS. Lessor shall pay a leasing commission to CPS, a Commercial Real Estate Company ("CPS"), representative of Lessor, pursuant to a separate commission agreement with said broker. Except for the foregoing, each party represents to the other that it has not had any dealings with any real estate broker, finder, or other person with respect to this Lease, and each party shall hold harmless the other party from all damages, expenses, and liabilities resulting from any claims that may be asserted against the other party by any broker, finder, or other person with whom the other party has or purportedly has dealt. 28. EXPANSION SPACE. Subject to the renewal rights of the existing tenants occupying other space in the Building, Lessor shall deliver to Lessee written notice of the availability of space for lease in the Building and the rental and other terms of conditions on which said space is offered for lease by Lessor. If Lessee elects to lease such space at such 29 rental and upon said terms and conditions, Lessee shall deliver written notice to Lessor of Lessee's acceptance and agreement to lease such space for such rental and upon said terms and conditions within three (3) business days after receipt by Lessee of the notice of availability of said space. Lessee shall have no right to lease such space if Lessee fails to deliver such written notice to Lessor within said period of three (3) days. 29. SUBORDINATION. This Lease, without any further instrument, shall at all times be subject and subordinate to any and all now effective or hereafter executed ground or underlying leases, and to any and all mortgages and deeds of trust which may now or hereafter affect Lessor's estate in the real property of which the premises form a part, and to all advances made or hereafter to be made upon the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof, provided, however, this Lease shall not be subject to or subordinate to any such mortgage or deed of trust unless the holder of such interest to which this Lease shall be subordinated executes a recognition and non-disturbance agreement which provides (1) that this Lease shall not be terminated so long as Lessee is not in default under this Lease, and (2) that upon acquiring title to the Complex by foreclosure or otherwise such holder shall recognize all of Lessee's rights hereunder which accrue thereafter. In confirmation of such subordination, Lessee shall promptly execute any certificate or other instrument which Lessor may deem proper to evidence such subordination, without expense to Lessor; provided, however, that if any person or persons purchasing or otherwise acquiring the real property of which the premises form a part by any ground lease termination, or any sale, sales and/or other proceedings under such mortgages and/or deeds of trust, shall elect to continue this lease in full force and effect in the same manner and with like effect as if such person or persons had been named as Lessor herein, then this Lease shall continue in full force and effect as aforesaid, and Lessee hereby attorns and agrees to attorn to such person or persons. Lessor shall use its reasonable good faith efforts to cause any existing lender to execute a recognition and non-disturbance agreement within thirty (30) days of the execution of this Lease. 30. NO TERMINATION RIGHT. Except as otherwise expressly set forth in this Lease, Lessee shall not have the right to terminate this Lease as a result of any default by Lessor and Lessee's remedies shall be limited to damages and/or injunction. Lessee expressly waives the defense of constructive eviction. 31. APPROVALS. Notwithstanding anything to the contrary in this Lease, whenever this Lease requires an approval, consent, designation, determination or judgment by either Lessor or Lessee, such approval, consent, designation, determination, or judgment (including, without limiting the generality of the foregoing, those required in connection with assignment and subletting) shall not be unreasonably withheld or delayed and in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith. 30 32. LESSOR'S ENTRY. Lessor and Lessor's agents, except in the case of an emergency, shall provide Lessee with twenty-four (24) hours' notice prior to entry of the premises. Such entry by Lessor and Lessor's agents shall not impair Lessee's operations more than reasonably necessary. Lessor and Lessor's agents shall at all times be accompanied by Lessee during any such entry except in case of emergency and except for janitorial work. 33. REASONABLE EXPENDITURES. Notwithstanding anything to the contrary in this Lease, any expenditure by a party permitted or required under this Lease, for which such party is entitled to demand and does demand reimbursement from the other party, shall be limited to the fair market value of the goods and services involved, shall be reasonably incurred, and shall be substantiated by documentary evidence available for inspection and review by the other party or its representative during normal business hours. 34. ATTORNEYS' FEES. If any action at law or in equity shall be brought to recover any rent under this Lease, or for or on account of any breach of or to enforce or interpret any of the provisions of this Lease or for recovery of the possession of the Premises, the prevailing party shall be entitled to recover from the other party costs of suit and reasonable attorneys' fees, the amount of which shall be fixed by the court and shall be made a part of any judgment rendered. 35. GENERAL PROVISIONS. (a) Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership or of joint venture of any association between Lessor and Lessee, and neither the method of computation of rent nor any other provisions contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship between Lessor and Lessee other than the relationship of landlord and tenant. (b) Whenever the consent of a party is required as a condition to any action pursuant to any provision of this Lease such consent shall not be unreasonably withheld or delayed. (c) Each and all of the provisions of this Lease shall be binding upon and inure to the benefit of the parties hereto, and except as otherwise specifically provided elsewhere in this Lease, their respective heirs, executors, administrators, successors, and assigns, subject at all times, nevertheless, to all agreements and restrictions contained elsewhere in this Lease with respect to the assignment, transfer, encumbering, or subletting of all or any part of Lessee's interest in this Lease. 31 (d) The captions of the paragraphs of this Lease are for convenience only and shall not be considered or referred to in resolving questions of interpretation or construction. (e) This Lease is and shall be considered to be the only agreement between the parties hereto and their representatives and agents. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties and all reliance with respect to representations is solely upon the representations and agreements contained in this instrument. (f) The laws of the State of California shall govern the validity, performance, and enforcement of this Lease. Notwithstanding which of the parties may be deemed to have prepared this Lease, this Lease shall not be interpreted either for or against Lessor or Lessee, but this Lease shall be interpreted in accordance with the general tenor of the language in an effort to reach an equitable result. (g) Time is of the essence with respect to the performance of each of the covenants and agreements contained in this Lease. (h) Lessee hereby expressly waives any and all rights of redemption granted by or under any present or future law in the event of Lessee being evicted or dispossessed for any cause, or in the event of Lessor obtaining possession of the premises by reason of the breach by Lessee of any of the covenants and conditions of the Lease or otherwise. The rights given to Lessor herein are in addition to any rights that may be given to Lessor by any statute or otherwise. (i) Any provision or provisions of this Lease which shall prove to be invalid, void or illegal, shall in no way affect, impair, or invalidate any other provisions hereof, and the remaining provisions hereof shall nevertheless remain in full force and effect. (j) Because Lessee is a corporation, this Lease must be executed by the President and/or the Vice President of the corporation, unless the Bylaws or a resolution of the Board of Directors shall otherwise provided, in which event the Bylaws or a certified copy of the resolution, as the case may be, must be furnished. (k) Delivery of this Lease, duly executed by Lessee, constitute an offer to lease the premises as herein set forth, and under no circumstances shall such delivery be deemed to create an option or reservation to lease the premises for the benefit of Lessee. 32 This Lease shall only become effective and binding upon execution hereof by Lessor and delivery of a signed copy to Lessee. (1) Lessor shall provide monument signage for the Complex upon which Lessee's name shall be shown, subject to the signage rights of the existing tenants in the Building. IN WITNESS WHEREOF, the Lessor and Lessee have duly executed this Lease as of the date first set forth herein. "Lessor" W. F. BATTON & CO., INC., a California corporation By /s/ W. F. Batton ------------------ Its President ---------- "Lessee" NOVELLUS SYSTEMS, INC., a California corporation By /s/ John. P. Root ------------------- Its Treasurer ------------ 33 LEGAL DESCRIPTION: All that real property situate in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: LOT 14, as shown on that certain Map of Tract No. 7544, which map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on March 7, 1984 in Book 525 of Maps, page(s) 45 and 46, and the Certificate of Correction recorded August 8, 1985 in Book J422, page 1784, Official Records. Excepting therefrom that portion conveyed to the Santa Clara County Transit District by deed recorded May 28, 1987 in Book K165, page 2153 of Official Records, described as follows: Beginning at the Southwesterly corner of Lot 14, as said Lot is shown on said Tract Map; thence Easterly along the dividing line between Lot 14 and the Lands of the City and County of San Francisco, as shown on said Tract Map, N. 66 deg. 00' 56" E. 210.13 feet to the true point of beginning of this description; thence continuing Easterly along said dividing line N. 66 deg. 00' 56" E. 68.00 feet; thence Northerly at right angles N. 23 deg. 59' 04" W. 40.00 feet to a point on a line that is parallel with and 40.00 feet, measured at right angles, Northerly of the said Southerly line of Lot 14; thence Westerly along said parallel line S. 23 deg. 59' 04" E. 40.00 feet to the true point of beginning. Also excepting therefrom that portion that conveyed to the Santa Clara County Transit District by Grant Deed recorded September 6, 1990 in Book L471, page 1534, Official Records, described as follows: All that portion situated in the City of San Jose, County of Santa Clara, State of California and being a portion of Lot 14, as said Lot is shown on that certain Tract No. 7544, filed in Book 525 of Maps, pages 45 and 46, Records of Santa Clara County, California, and more particularly described as follows: Beginning at the Southwesterly corner of Lot 14, as said Lot is shown on said Tract Map; thence easterly along the dividing line between Lot 14 and the lands of the City and County of San Francisco, as shown on said Tract Map, N. 66 deg. 00' 56" E. 205.13 feet to the true point of beginning of this description; thence continuing Easterly along said dividing line N. 66 deg. 00' 56" E. 5.00 feet; thence Northerly at right angles N. 23 deg. 59' 04" W. 40.00 feet to a point on a line that is parallel with and 40.00 feet, measured at right angles Northerly of the said Southerly line of Lot 14; thence Westerly along said parallel line S. 66 deg. 00' 56" W. 5.00 feet; thence Southerly at right angles S. 23 deg. 59' 04" E. 40.00 feet to the true point of the beginning. PARCEL TWO: A non-exclusive easement for the parking of vehicles on that certain portion EXHIBIT "A" Page 2 of the real property commonly known as the Hetch Hetchy right-of-way as granted in that certain instrument recorded May 16, 1986 in Book J695, page 1295, Official Records. ARB No. ht 3590 North First Street, San Jose Third Floor [FLOOR PLAN] North Tower 13,425+/- Rentable Square Feet [FLOOR PLAN] South Tower 12,905+/- Rentable Square Feet [LOGO] EXHIBIT B DEVCON CONSTRUCTION INC. SCHEDULE OF VALUES JOB #= NAME: NOVELLUS ------ SITE= NORTHPOINTE 3rd FLR WEST DRAWING= OCT 8/30 SPACE PLAN AREA= SF DATE:9/6 ESTIMATE #1 -------
ITEM TOTAL ------------------------------------- 1 SUPERVISION & LAYOUT $1,600 2 TEMPORARY FACILITIES 200 3 CLEAN UP 600 4 DEMOLITION 1,900 5 CABINETS & MILLWORK 2,200 6 DOORS/FRAMES/ 550 7 DRYWALL & FRAMING 1,800 8 ACOUSTICAL CEILING 600 9 FLOORCOVERING 3,800 10 PAINT 600 11 PLUMBING 4,000 12 FIRE SPRINKLERS 500 13 HVAC 300 14 ELECTRICAL 1,700 15 SYSTEM PTM CONNECTION 500 ALLOWANCE -------- SUB TOTAL $20,850 CONTRACTORS O.H. & PROFIT 1,043 ARCHITECTURAL DESIGN COSTS 0 TESTING & INSPECTION 0 CONSULTANT FEES 0 PLAN CHECK/PERMIT FEES 0 LABOR LIABILITY INSURANCE 0 ------- ------- JOB TOTAL $22,693 ALTERNATES #1 - RECARPET ENTIRE SUITE ADD $40,193 #2 - REPAINT ENTIRE SUITE ADD 3,500
QUALIFICATIONS ALL WORK TO BE DONE DURING REGULAR HOURS. COFFEE SINK WASTE LINE WILL NOT FIT INTO 2ND FLOOR ABOVE-CEILING SPACE. WE ASSUME BLDG DEPT WILL ALLOW WASTE LINE TO BE PUMPED OVERHEAD. ALLOWANCE INCLUDED TO CONNECT SYSTEM PARTITIONS TO EXISTING OVERHEAD JUNCTION BOXES. NEW CARPET LABS ASSUMED TO BE LEAD OVER EXISTING VCT. WE ASSUME THIS WORK TO BE DONE WITHOUT PERMITS EXISTING RVAC/ELECTRICAL IMPROVEMENTS ASSUMED TO BE ADEQUATE. INCLUSIONS PHONE/DATA CABLING ADDITIONAL ELECTRICAL POWER SECURITY SYSTEM REVISED ELECTRICAL METERING EXHIBIT "C" EX-10.24 7 EXHIBIT 10.24 SUBLEASE AGREEMENT This Sublease ("Sublease") is made as of this 13th day of January, 1995, by and between LTX CORPORATION, a Massachusetts corporation ("Sublandlord") and NOVELLUS SYSTEMS, INC., a California corporation ("Subtenant"). WITNESSETH: 1. RECITALS. This Sublease is made with reference to the following facts: 1.1 California Second, Ltd., a Florida limited partnership, as landlord ("Master Landlord"), and Sublandlord, as tenant, entered into a written lease dated March 8, 1984 (the "Original Lease"), covering premises described in the Original Lease. 1.2 The Original Lease was amended by that certain (i) First Addendum to Lease, dated May 7, 1984, (ii) Addendum No. 2, dated May 30, 1990, (iii) Third Amendment to Lease, dated February 17, 1994, and (iv) Fourth Amendment to Lease, executed contemporaneously herewith. The Original Lease and said amendments are hereinafter collectively referred to as the "Master Lease", a copy of which is attached hereto and incorporated herein as EXHIBIT A. 1.3 Subtenant desires to sublet all the premises described in the Master Lease (the "Premises") from Sublandlord on the terms and conditions contained in this Sublease. 2. BASIC SUBLEASE PROVISIONS. 2.1 Project Name: McCandless Business Park Premises Address: 3970 North First Street, San Jose, California 2.2 Rentable Area of Premises: 42,048 square feet. 2.3 Subtenant's Percentage Share: 28.63% of the Project Common Area Charges. 2.4 Commencement Date: March 1, 1995. Notwithstanding the foregoing, Sublandlord shall provide Subtenant with thirty (30) days advance written notice confirming the date that the Premises will be available for occupancy. In the event that Sublandlord is unable to deliver possession of the Premises to Subtenant on or before March 17, 1995, Subtenant shall be credited with one (1) day of free rent for each day possession is not delivered after March 17, 1995. In the further event that Sublandlord is unable to deliver the Premises on or before May 1, 1995, Sublandlord shall deliver written notice to Subtenant no later than April 26, 1995, notifying Subtenant of Sublandlord's 1 inability to deliver to Premises by May 1, 1995; if Sublandlord is unable to deliver the Premises on or before May 1, 1995, Subtenant shall have the right in its sole discretion either to continue or to terminate this Sublease. If Subtenant does not deliver to Sublandlord written notice of its election to continue this Sublease by May 5, 1995, this Sublease shall automatically terminate and any sums previously delivered to Sublandlord by Subtenant shall be returned to Subtenant and the parties shall have no further rights and obligations hereunder. If Sublandlord permits Subtenant to occupy the Premises prior to February 1, 1995, and Subtenant accepts such early possession (in its sole discretion), such occupancy shall be subject to all of the provisions of this Sublease. Such early possession shall not advance the Expiration Date of this Sublease. 2.5 Expiration Date: June 20, 1999. 2.6 Rent Commencement Date: March 1, 1995; provided, however, Subtenant shall not be obligated to pay Basic Monthly Rent or Common Area Charges or any other tenant charges until possession of the Premises is delivered to Subtenant pursuant to Subparagraph 2.4 above. Upon the Commencement Date, Subtenant shall deliver to Sublandlord the sum of Twenty-Seven Thousand Three Hundred Thirty-One and 20/100 Dollars ($27,331.20) to be credited against Subtenant's first month of rent ("Advance Rent"). 2.7 Basic Monthly Rent: $27,331.20 commencing on the Rent Commencement Date. All rent shall be paid without demand, deduction, set-off or counterclaim, in advance on the first day of each calendar month during the term of this Sublease, and in the event of a partial rental month, rent shall be prorated. 2.8 Permitted Use: The Premises may be used for the following purposes: (i) general office uses, (ii) research and development of semiconductor equipment, (iii) light manufacturing and assembly of semiconductor equipment, (iv) processing of semiconductor wafers, and (v) any other lawful use permitted under the Master Lease. 2.9 Subtenant Improvement Allowance: Upon the Commencement Date, Sublandlord shall provide Subtenant with One Hundred Twenty-Five Thousand Dollars ($125,000) to be utilized for improvement of the Premises. Sublandlord shall net Subtenant's Advance Rent and Security Deposit against the Subtenant Improvement Allowance for a net payment to Subtenant of Seventy Thousand Three Hundred Thirty-Seven and 60/100 Dollars. ($70,337.60). The 2 Subtenant Improvements to be constructed by Subtenant shall be constructed by McCandless Construction pursuant to plans and specifications to be prepared by Craig Almeleh/McCandless Construction based on the description of tenant improvements attached hereto and incorporated herein as EXHIBIT B and the final plans and specifications are subject to Master Landlord's consent and approval as required under Paragraph 8 of the Master Lease. Sublandlord hereby consents to Subtenant's construction of said Subtenant Improvements and Construction of the alterations shall be made in accordance with the terms of Paragraph 8 of the Master Lease, subject to obtaining Master Landlord's consent. 2.10 Option to Extend: Sublandlord hereby assigns to Subtenant all its rights in the Option to Extend Term set forth in Paragraph 3 of the Third Amendment to Lease, as modified by Paragraph 1 of the Fourth Amendment to Lease. In the event that the option is timely exercised by Subtenant, Subtenant and Master Landlord shall enter into a direct lease under all the provisions of the Master Lease, including without limitation, the amount of basic rent which shall be determined pursuant to the terms and conditions of Paragraph 3 of the Third Amendment to Lease, and the Master Lease shall terminate upon execution of a binding direct lease between Subtenant and Master landlord on said terms. 2.11 Acceptance of Premises: Subtenant agrees to accept the Premises in an "as is" condition. Without limiting the foregoing, Subtenant's rights in the Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Premises. Subtenant acknowledges that neither Sublandlord nor Sublandlord's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Subtenant's business. 2.12 Address for payment of rent and notices: SUBLANDLORD: SUBTENANT: LTX Corporation Novellus System, Inc. LTX Park at University Ave. 81 Vista Montana Westwood, MA 02090-2306 San Jose, CA 95134 Att'n: Glenn Meloni, Att'n: John Root Corporate Controller (408) 943-3422 fax (617) 329-8886 fax 2.13 Security Deposit: Upon the Commencement Date, Subtenant shall deposit with Sublandlord the sum 3 of Twenty-Seven Thousand Three Hundred Thirty-One and 20/100 Dollars ($27,331.20) ("Deposit") as security for Subtenant's faithful performance of Subtenant's obligations hereunder. If there is an Event of Default by Subtenant hereunder, Sublandlord may use, apply or retain all or any portion of the Deposit for the payment of any rent or other charge in default or for the payment of any other sum which Sublandlord incurs by reason of Subtenant's default , or to compensate Sublandlord for any loss or damage which Sublandlord may suffer thereby. If Sublandlord uses or applies all or any portion of the Deposit, Subtenant shall within ten (10) days after written demand therefor deposit cash with Sublandlord in an amount sufficient to restore the Deposit to its full amount and Subtenant's failure to do so shall be a material breach of this Sublease. Sublandlord shall not be required to keep the Deposit separate from its general accounts. If Subtenant performs all of Subtenant's obligations hereunder, the Deposit, or so much therof as has not been used or applied by Sublandlord, shall be returned with payment of interest, to Subtenant within ten (10) days after the Expiration date. 2.14 Broker: The Commercial Property Service Company ("CPS). Sublandlord and Subtenant hereby acknowledge and agree that CPS is acting as a dual agent. 3. INCORPORATION BY REFERENCE; ASSUMPTION. All of the Paragraphs of the Master Lease are incorporated into this Sublease as if fully set forth in this Sublease except for the following: Paragraphs 2,3,4 (a), 4 (b), 4 (d), 5,31,49,50, and Exhibit C of the Original Lease; the First Amendment to Lease; Addendum No. 2; and Paragraphs 2, 3 (e), and 6 of the Third Amendment to Lease. 3.1 If any provisions of this Sublease conflict with any portion of the Master Lease as incorporated herin, the terms of this Sublease shall govern. 3.2 Subtenant shall assume and perform to Sublandlord the Tenant's obligations under the Master Lease provisions to the extent that the provisions are applicable to the Premises. Subtenant shall pay to Sublandlord all taxes, utilities, common area charges and any other sums payable by Sublandlord under the Master Lease prior to the date any such amounts are due and payable by Sublandlord. 3.3 With respect to work, services, repairs, repainting, restoration, the provision of utilities, elevator or HVAC services, or the performance of other obligations required of Master Landlord uner the Master Lease, Sublandlord shall be obligated to request the same, on request in writing by subtenant, and to use diligent efforts to obtain the same from Master Landlord. Subtenant shall cooperate with Sublandlord as 4 may be required to obtain from Master Landlord any such work, services, repairs, repainting restoration, the provision of utilities, elevator or HVAC services, or the performance of any of Master Landlord's other obligations under the Master Lease. 4. COVENANT OF QUIET ENJOYEMNT. Sublandlord represents that the Master Lease is in full force and effect and that there are no defaults on Sublandlord's or Master Landlord's part under it as of the Commencement Date. Subject to the terms of this Sublease and the Master Lease, Sublandlord represents that if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout the term of this Sublease the quiet and undisturbed possession of the Premises. 5. MASTER LEASE. 5.1 Subtenant and Sublandlord, and each of them, hereby agree that they will not do or permit to be done anything which would constitute a violation or breach of any of the terms, conditions or provisions of the Master Lease or which would cause the Master Lease to be terminated or forfeited by virtue of any risks of termination or forfeiture reserved by or vested in Master Landlord. 5.2 If Sublandlord defaults under the Master Lease, Master Landlord hereby agrees to give Subtenant written notice of the default and Subtenant shall have five (5) days from the date such notice is given to Subtenant to cure such default or a reasonable time if a non-monetary default can not reasonably be cured within five (5) days; provided that Subtenant shall have no obligation to cure any such default by Sublandlord. Notwithstanding anything to the contrary contained herein, any and all amounts expended by Subenant to cure Sublandlord's default under the Master Lease shall serve as an offset against any monies owed to Sublandlord by Subtenant under this Sublease. 5.3 If there is a default under the Master Lease by Sublandlord, and Master Landlord and Subtenant are able to agree on the terms of the new direct lease between Master Landlord and Subtenant, including payment of all past-due monetary payments and cure of any other defaults under the Master Lease, Sublandlord hereby agrees that the Master Lease may be terminated by Master Landlord and that Master Landlord and Subtenant shall have the right, without any other further action, agreement or document from or on behalf of Sublandlord, to enter into the new direct lease, and the Master Lease shall be deemed terminated as of the date of execution of such new direct lease (the "Master Lease Termination Date") between Master Landlord and Subtenant and Sublandlord shall be released of all obligations under the Master Lease accruing after the Master Lease Termination Date; provided, however, Master Landlord and Subtenant may enter into such new lease without waiving any rights, remedies or claims either may have against Sublandlord as a result of the default under the Master Lease which accrued prior to the Master Lease Termination Date, and all such rights, remedies and claims shall 5 be deemed preserved and survive the termination of Master Lease as specified herein. 5.4 If Sublandlord is given the right under the Master Lease to terminate the Master Lease (e.g. in case of destruction or condemnation), Subtenant shall have the right, in its sole discretion, to determine whether it wishes to have the Master Lease terminated. If Subtenant elects to have the Master Lease terminated, Subtenant shall terminate this Sublease and Sublandlord shall terminate the Master Lease. If Subtenant elects not to terminate this Sublease, then Sublandlord shall promptly take such action as is necessary under the Master Lease, if any, to prevent any such termination from occurring. 6. REPRESENTATIONS AND WARRANTIES OF SUBLANDLORD. Sublandlord represents and warrants as follows: (i) the Master Lease is the entire agreement between Master Landlord and Sublandlord regarding the Premises, and the Master Lease has not been amended or modified except as expressly set forth in this Sublease, (ii) Master Landlord and Sublandlord are not now, and at the Commencement Date will not be, in breach or default of any of the provisions of the Master Lease, and (iii) Sublandlord has now, and will have as of the Commencement Date, complied with all laws and regulations relating to the use and occupancy of the Premises 7. HAZARDOUS MATERIALS. Sublandlord represents that to the best of its knowledge there are no Hazardous Materials (as defined in the Master Lease) on, in, under or about the Premises. Sublandlord further represents that it has complied with all Hazardous Materials Laws (as defined in the Master Lease) during its tenancy on the Premises. 8. REAL ESTATE BROKERS. Each party warrants to the other that there are no brokerage commissions or fees payable in connection with this Sublease except to the broker set forth in Paragraph 2.14 above, whose commission shall be paid by Sublandlord. Each party further agrees to indemnify and hold the other party harmless, from any cost, liability and expense (including attorneys' fees) which the other party may incur as the result of any breach of this Paragraph 8. 9. ARBITRATION. The provisions of this Paragraph 9 shall apply to the resolution of disputes between Sublandlord and Subtenant unless the Master Landlord is or may become a party to the dispute, in which event the provisions of this Paragraph 9 shall apply only if the Master Landlord agrees to settle the dispute pursuant to the terms hereof. DISPUTE RESOLUTION: NOTICE: BY INITIALLING IN THE SPACE BELOW, SUBLANDLORD AND SUBTENANT AGREE TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THIS DISPUTE RESOLUTION PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED UNDER CALIFORNIA LAW AND SUBLANDLORD AND SUBTENANT AGREE TO GIVE UP ANY RIGHTS EACH MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT BY JURY TRIAL. BY INITIALLING IN THE SPACE BELOW, SUBLANDLORD AND SUBTENANT EACH AGREE TO GIVE UP THEIR JUDICIAL 6 RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE DISPUTE RESOLUTION PROVISION. IF EITHER PARTY REFUSES TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, THE NONCOMPLYING PARTY MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. SUBLANDLORD'S AND SUBTENANT'S AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. EACH PARTY HAS READ AND UNDERSTANDS THE FOREGOING AND AGREES TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE DISPUTE RESOLUTION PROVISION TO NEUTRAL ARBITRATION. Subtenant: /s/ Sublandlord:/s/ -------------- -------------- EXCEPT AS PROVIDED IN THE FIRST PARAGRAPH AND THE LAST PARAGRAPH OF THIS PARAGRAPH 9, ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS SUBLEASE OR ANY AGREEMENT OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO, A CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH CALIFORNIA LAW UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST OF THREE JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN JOSE, OR IN A LOCATION AGREED TO BY THE PARTIES. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS PR0VISION, OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATORS. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR IN PURSUANT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION. 10. ATTORNEYS' FEES. If there is any legal or arbitration action or proceeding between Sublandlord and Subtenant to enforce any provision of this Sublease or to protect or establish any right or remedy of either Sublandlord or Subtenant hereunder, the unsuccessful party to such action or proceeding will pay to the prevailing party all costs and expenses, including reasonable attorneys' fees incurred by such prevailing party in such action or proceeding and in any appearance in connection therewith, and if such prevailing party recovers a judgment in any such action, proceeding or appeal, such costs, expenses and attorneys' fees will be determined by the court or arbitration panel handling the proceeding and will be included in and as a part of such judgment. 11. NOTICES. All notices given under this Sublease must be in writing and shall be effectively served upon delivery, or if mailed, upon the first to occur of receipt or the expiration of forty-eight hours after deposit in certified United States mail, 7 postage prepaid, sent to the party at its address set forth in Paragraph 2.12. Those addresses may be changed by either party by notice to the other party. 12. AUTHORIZATION. Each party hereto represents that it has the authority to enter into this Sublease, and that all requirements or conditions precedent to its execution of this Sublease have been satisfied. 13. MASTER LANDLORD'S CONSENT. This Sublease is expressly conditioned upon receipt of the written consent of Master Landlord in the form attached hereto within five (5) days from the date of this Sublease. IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the day and year first above written. Sublandlord: LTX CORPORATION, a Massachusetts corporation By /s/ John F. Anori ----------------------------------------- Its Chief Financial Officer ---------------------------------------- Subtenant: NOVELLUS SYSTEMS, INC., a California corporation By /s/ ------------------------------ Its V.P. and Chief Financial Officer ----------------------------- 8 CONSENT OF MASTER LANDLORD California Second, Ltd., a Florida limited partnership ("Master Landlord"), hereby certifies to Subtenant that (i) the Master Lease (as defined in the Sublease and attached thereto as EXHIBIT A) is the entire agreement between Master Landlord and Sublandlord regarding the Premises, and the Master Lease has not been amended or modified, (ii) Master Landlord is not now, and at the Commencement Date will not be, in breach or default of any of the provisions of the Master Lease, and (iii) to the best of Master Landlord's knowledge, Sublandlord is not in breach or default of any provision of the Master Lease. Master Landlord hereby consents to the foregoing Sublease, and specifically agrees to the permitted uses specified in Paragraph 2.8 of the Sublease, the assignment of the option to extend the term as specified in Paragraph 2.10 of the Sublease, the notice provisions specified in Paragraph 5.2 of the Sublease, and the provisions of Paragraph 5.3 of the Sublease. Date: February 3, 1995 Master Landlord: CALIFORNIA SECOND, LTD., a Florida limited partnership By: McCandless Partnership, a California general partnership, as its general partner By: /s/ Birk S. McCandless ---------------------------- Birk S. McCandless, as Trustee under the Birk S. McCandless and Mary McCandless Inter Vivos Trust Agreement, dated February 17, 1982, as a general partner EXHIBIT A MASTER LEASE EXHIBIT B DESCRIPTION OF TENANT IMPROVEMENTS Sublandlord and Master Landlord acknowledge Subtenant intends to install the following improvements in the Premises and approves the same subject to Master Landlord's approval of the final plans and specifications: 1. The building will be remodeled to be a standard open office type of environment except for a warehouse adjoining the loading dock no less than 5,000 square feet no greater than 15,000 square feet. 2. The office area will have a standard 9' drop ceiling and the warehouse ceiling will be open to the roof structure. 3. The raised computer floors and computer rooms will be removed. Existing roof top HVAC units will remain. The office area will be serviced by a standard variable air volume HVAC system. 4. The existing restroom cores will be utilized and modified as needed to meet current codes. 5. Private offices and conference rooms will be distributed throughout the office area. Doors will be full height, solid core. 6. Lighting and electrical distribution will be standard for similar office space in other buildings in the project. 7. Floor coverings will consist of standard grade glue down carpet in the general office areas, with upgrades (at Subtenant's election) in executive offices and conference rooms. Lobbies and lunch room areas may have hard surface finishes of Subtenant's choice. Subtenant will submit final plans and specifications to Master Landlord for final approval prior to the commencement of construction. Master Landlord will approve the final plans within (5) five days of receipt. Subtenant will submit preliminary plans to Master Landlord for comment prior to the commencement of construction documents. LEASE THIS LEASE is made MARCH 8, 1984 between CALIFORNIA SECOND, LTD. ("Landlord") and LTX CORPORATION ("Tenant"). WITNESSETH: Landlord leases to Tenant and Tenant leases from Landlord those certain premises (the "Premises") outlined in red on Exhibit A, which Landlord and Tenant hereby agree consists of approximately forty-two thousand forty-eight (42,048) square feet in McCandless Business Park - San Jose (the "Project"). As used herein the term Project shall mean and include all of the land described in Exhibit B and all of the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Improvements for Tenant shall be constructed in accordance with the plans and specifications, and other terms and conditions, set forth in Exhibit C. Said work shall be at the expense of Landlord and/or Tenant as set forth in Exhibit C and shall in each case be performed diligently and in a first-class, workmanlike manner. Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance. 1. USE Tenant shall use the Premises for offices, research and development, and light manufacturing and shall not use or permit the Premises to be used for any other purpose. 2. TERM (a) The term shall be for ten (10) years (unless sooner terminated as hereinafter provided) and, subject to paragraphs 2(b) and 3, shall commence on May 15, 1984 and end on May 14, 1994. (b) Possession of the Premises shall not be deemed tendered and the term shall not commence until the first to occur of the following: 1 (1) One day after a Certificate of Occupancy is granted by the proper governmental agency, or, if the governmental agency having jurisdiction over the area in which the Premises are situated does not issue Certificates of Occupancy and no such certificate is required by law, then one day after certification by Landlord's architect or contractor that the Landlord's construction work has been completed; (2) Upon the occupancy of the Premises by any of Tenant's operating personnel; or (3) Upon substantial completion of all work to be done by Landlord pursuant to Exhibit C, exclusive of telephones or other communication systems and punchlist items, or, if Landlord is prevented from or delayed in completing its work under Exhibit C due to the acts or omissions of Tenant, then upon the date by which such work would have been completed but for such acts or omissions by Tenant. 3. POSSESSION If Landlord for any reason cannot deliver possession of the Premises to Tenant at the date of commencement set forth in paragraph 2(a), this lease shall not be void or voidable and Landlord shall not be liable to Tenant for any loss or damage on account thereof. Tenant shall not be liable for rent until Landlord delivers possession of the Premises to Tenant, as defined in paragraph 2. If the term commences on a date other than specified in 2(a) above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement. The expiration date of the term shall be extended by the same number of days that Tenant's possession of the Premises was delayed from that set forth in paragraph 2(a). Notwithstanding the above, the period of delay shall not exceed ninety (90) days from May 15, 1984 plus the number of days of delay caused by strike or other causes beyond Landlord's reasonable control. If the period of delay exceeds the allowable delay, Landlord shall not be liable to Tenant for any loss or damage on account thereof, but Tenant may, at its option, declare this lease void, and, if Tenant so elects, all amounts deposited with Landlord shall be returned to Tenant. 4. MONTHLY RENT (a) MONTHLY RENT. Tenant shall pay to Landlord as monthly rent for the Premises, in advance and subject to adjustment as provided in paragraph 5, the sum of Thirty-Two Thousand Two Hundred Twenty and no/100 Dollars ($32,220.00) on or before the first day of the first full calendar month 2 of the term and on or before the first day of each and every successive calendar month Rent for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly rent per day. (b) PLACE OF PAYMENT. All rent and other amounts due Landlord hereunder shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, at the office of Landlord at 710 Lakeway, Suite 200, Sunnyvale, California 94086 or to such other person or place as Landlord may from time to time designate in writing. (d) SECURITY DEPOSIT. Concurrently with Tenant's execution of this lease, Tenant shall deliver to Landlord an unconditional and irrevocable Letter of Credit in the amount of Forty-Five Thousand Four Hundred Eleven and 84/100 Dollars ($45,411.84) to secure the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. The Letter of Credit shall be available by draft at sight, subject only to receipt by the bank of a notarized statement from Birk S. McCandless or Steven E. Sund stating that the amount demanded is due and owing to Landlord. The Letter of Credit shall by its terms terminate on May 14, 1989. If Tenant fails to comply with any provision of this lease, including without limitation the payment of rent and other amounts due Landlord, after three (3) business days' written notice to Tenant, Landlord may immediately and without further notice resort to said Letter of Credit and use or apply all or any part of same to compensate Landlord for any loss and expense occasioned thereby and for the payment of any amount due Landlord under the terms of this lease. If any portion of said Letter of Credit is used as specified above, Tenant shall, within ten (10) business days after written demand therefor, restore the Letter of Credit to its original amount; Tenant's failure to do so shall be a material breach of this lease. Landlord's resort to said Letter of Credit shall in no way or manner constitute an acceptance of or waiver of such failure by Tenant to comply with this lease; nor shall resort to said Letter of Credit terminate, or permit Tenant to terminate, or constitute a forfeiture of, or be 3 construed as an election by Landlord to terminate, this lease; nor shall such resort affect Landlord's remedies otherwise available under this lease or at law. 5. ADJUSTMENTS TO MONTHLY RENT The monthly rent provided for in paragraph 4(a) shall be increase as follows: (a) The monthly rent shall be increased commencing on the first day of the eleventh (11th), thirty-seventh (37th) and forty-ninth (49th) months of the term, as follows: Months 11 - 36 $45,411.84 per month Months 37 - 48 $50,833.00 per month Months 49 - 60 $53,583.00 per month. (b) The monthly rent shall be adjusted to market rent on the first day of the sixty-first (61st) month of the term, such adjusted monthly rent being hereafter called "Revised Base Rent." If the parties are unable to agree on the Revised Base Rent at least thirty (30) business days before the first day of the sixty-first (61st) month of the term, the Revised Base Rent shall be set in the following manner: (i) Landlord and Tenant shall each select a licensed real estate broker with not less than five years' experience in the business of commercial leasing of property of the same type and use as the Premises and in the same geographial vicinity, (ii) such two real estate brokers shall select a third similarly qualified broker, and the three brokers so selected shall determine the Revised Base Rent, (iii) the decision of the brokers shall be final and binding upon the parties hereto, and (iv) the brokers shall base their determination of the Revised Base Rent on the monthly rent obtained for property of comparable location, type and use as the Premises with leases of comparable terms, provided that in no case shall the Revise Base Rent be greater than $1.59 per square foot per month nor less than the monthly rent in effect at the sixtieth (60th) month increased by eight percent (8%). Each party shall pay the expenses and charges of the broker appointed by it and the parties shall pay the expenses and charges of the third broker in equal shares. As soon as the Revised Base Rent is so determined, Landlord and Tenant shall immediately execute an amendment to this lease stating the Revised Base Rent. (c) The Revised Base Rent shall thereafter be adjusted annually commencing with the seventy-third (73rd) month of the term and every year thereafter in accordance 4 with any increases in the Consumer Price Index for the United States, All Urban Consumers (1967=100) (the "Index"). For the purpose of the adjustments, the base index shall be the Index in effect the first day of the sixty-first (61st) month of the term, and the Extension Index shall be the Index in effect on the date each respective adjustment becomes effective. If the Extension Index has increased over the Base Index, that percentage increase shall be applied to the Revised Base Rent to establish the adjusted monthly rent; provided, however, that in no event shall the monthly rent as so adjusted be less than four percent (4%) per year compounded, or greater than eight percent (8%) compounded, over the Revised Base Rent. 6. RESTRICTIONS ON USE Tenant shall not do or permit to be done in or about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (or otherwise effect) fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for sleeping, washing clothes, or the preparation, manufacture or mixing of anything that might emit any objectionable odor, noises or lights into the adjoining premises or common areas, or the Project. Tenant shall not do anything on the Premises that will cause damage to the project or the building in which the Premises are located and the Premises shall not be overloaded. No machinery, apparatus or other appliance shall be used or operated in the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge of whether such odors, noises, lights or vibrations are such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or inside of the building proper where designated; and no toxic 5 or hazardous materials shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi-finished projects, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises. 7. COMPLIANCE WITH LAWS Tenant shall, in connection with its use and occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect,(ii) with the requirements of any board of fire underwriters or any other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure, and provided further that as to any required capital improvement having a useful life of more than one year and which is not required by reason of Tenant's specific use of the Premises, Landlord shall make such capital improvement and Tenant shall pay to Landlord, as additional rent and in cash, the fraction of the cost of such capital improvement equal to the remaining term of this lease over the useful life of the capital improvement. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that act as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding the any loss or use or other effect on Tenant's enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations, and requirements now and hereafter in effect. Notwithstanding the above and except as otherwise specifically provided in Exhibit C , Landlord shall, at its sole cost and expense, make any additions or changes to the Premises as may be required to bring the Premises into compliance with laws, statutes, ordinances and governmental rules, regulations or requirements in effect at the commencement date of this lease. 6 8. ALTERATIONS Tenant shall not make or suffer to be made any alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as "alterations") without (i) the prior written consent of Landlord (provided that no prior consent shall be required in the case of non- structural improvements costing less than $2,500) and (ii) a valid building permit issued by the appropriate governmental authority. Any alteration made by Tenant (excluding moveable furniture and trade fixtures which have not become an integral part of the building) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and sub-panels), air conditioning, partitioning, drapery and carpet installations made by Tenant, regardless of how attached to the Premises, together with all other alterations that have become an integral part of the building of which the Premises are a part, shall be and become part of the Premises and belong to Landlord upon installation and shall not be deemed trade fixtures, and shall remain upon and be surrendered with the Premises at the termination of this lease. Any alteration by Tenant shall be made by Tenant at its sole risk, cost and expense. Alterations requiring Landlord's consent shall be made only after Landlord's written approval of any contractor or person selected by Tenant for that purpose. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly both remove any such alteration made by Tenant and Tenant shall repair any damage to the Premises caused by such removal. Any movable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of Landlord unless promptly removed by Tenant. If during the term any alteration, addition or change of the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same; provided that as to any such required capital improvement having a useful life of more than one year and which is not required by reason of Tenant's specific use of the Premises, Landlord shall make such capital improvement and Tenant shall pay to Landlord, as additional rent and in cash, the fraction of the cost of such capital improvement equal to the remaining term of this lease over the useful life of such capital improvement. If during the term any alteration or change to the Common Area (or to the Project or building in which the Premises is 7 located and it being, in Landlord's judgment, impractical for the affected tenants to individually make such alterations, additions or changes) is required by law, regulation, ordinance or order of any public or quasi-public authority, the cost of such alteration or change shall be a Common Area Charge and Tenant shall pay its percentage share of said costs to Landlord as provided in paragraph 16. 9. REPAIR AND MAINTENANCE By entry hereunder Tenant accepts the Premises as being in good and sanitary order, condition and repair (excepting only "punch list" items). Except as expressly provided below, Tenant shall at its sole cost keep and maintain the entire Premises and every part thereof including, without limitation, the windows, window frames, plate glass, glazing, truck doors, doors and all door hardware, the interior walls and partitions, lighting and the electrical and plumbing systems. Tenant shall also repair and maintain the heating and air conditioning systems (unless Landlord has elected to keep and maintain the heating and air conditioning systems as provided below) which shall include, without limitation, a periodic maintenance agreement with a reputable and licensed heating and air conditioning service company. If Tenant's use of the heating and air conditioning systems is limited to normal business hours (8 a.m. to 6 p.m.), such agreement shall provide for service at least as often as every sixty days; if Tenant's use of the heating or air conditioning systems extends beyond such normal business hours, this service shall be as often as may be required by Landlord; and in any event such service shall meet all warranty enforcement requirements of such equipment and comply with all manufacturer recommended maintenance. Landlord may elect, at its option, to keep and maintain the heating and air conditioning systems of the Premises and in such event, Tenant shall pay to Landlord upon demand the full cost of such maintenance and of repairs to such systems. To the full extent that it may do so, Landlord agrees to pass on to Tenant all applicable warranties with respect to items that Tenant is obligated to repair and maintain. Subject to the provisions of paragraph 17, Landlord shall keep and maintain the roof and structural elements of the buildings constituting the Project, and Common Area, in good order and repair. As used herein, "roof" is defined as the building's roofing membrane and tiles, and "structural elements" is defined as the building's foundation, slab-on-grade, columns, shear walls, floor trusses, metal deck and concrete fill, and the roof beams, purlins and roof plywood. Tenant waives all rights under and benefits of California Civil Code Sections 1932(1), 1941 and 1942 and under any 8 similar law, statute or ordinance now or hereafter in effect. The cost of the repairs and maintenance which are the obligation of Landlord hereunder shall be a Common Area Charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16; provided, however, that if Landlord replaces the entire roof of the building containing the Premises during the term, the Landlord shall bear the cost thereof and no part thereof shall be included in a Common Area Charge, and provided, further, that if any repairs or maintenance is required because of an act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full costs of such repair or maintenance. 10. LIENS Tenant shall keep the Premises and the Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at least fifteen (15) days' prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. 11. INSURANCE Tenant, At it's sole cost and expense, shall keep in force during the term (i) public liability insurance with limits of at least $2,000,000 per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Project and property damage insurance with limits of at least $2,000,000 per occurrence and (iii) Worker's Compensation insurance as required by the State of California. All such policies shall be primary and shall provide that said insurance shall not be canceled or reduced except upon at 9 least thirty (30) days' prior written notice to Landlord. Further, Tenant's public liability insurance shall name Landlord as Additional Insured using ISO Bureau Form G109 or G112001 (or a successor form); shall contain cross-liability endorsements; and shall be issued by an insurance company admitted to transact business in the State of California. Landlord agrees to pay on demand up to $25.00 for the Additional Insured Endorsement. Tenant shall, prior to the commencement of the term, provide landlord with a completed Certificate of Insurance using Acord Form 25, a blank copy of which is attached to this lease. Tenant agrees to increase the coverages or otherwise comply with changes in connection with said public liability, property damage and Workers Compensation insurance as Landlord or Landlord's lender may from time to time require. Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the project, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, with increased cost of reconstruction and contingent liability (including demolition) and flood and/or earthquake insurance if available, plus a policy of rental income insurance in the amount of 100% of twelve (12) months' rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord's lender may from time to time require. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and any deductible paid by Landlord, shall be Common Area Charges and Tenant shall pay its percentage share of such costs as provided in paragraph 16. If insurance costs are increased due to Tenant's use of the Premises, then tenant shall pay to Landlord upon demand the full cost of such increase. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises, the Project, or any part thereof, or any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long as such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums. If additional premiums must be paid, Tenant shall pay such additional premiums necessary to obtain such waiver. A copy of the Waiver of Subrogation in favor of Landlord shall be attached to the Tenant's completed Acord Form 25. 10 Notwithstanding anything hereinabove contained, Tenant shall be responsible for carrying, and shall pay the cost of, any casualty insurance as Tenant deems appropriate with respect to any Tenant's personal property and fixtures and any tenant improvements not the property of Landlord. 12. UTILITIES AND SERVICES Tenant shall pay for all water, gas, light, heat, power, electricity, telephone, trash pick-up, sewer charges and all other services supplied to or consumed on the Premises. Landlord shall install separate meters for interior gas, electricity and water. The cost of any utility or service not separately metered or billed to the premises shall be a Common Area Charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. In addition, the cost of all utilities and services supplied to the Common Area shall be a Common Area Charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. If Tenant's use of any such utility or service is materially in excess of the average furnished to the other tenants of the Project, and such utility or service is not separately metered, then Tenant shall pay to Landlord upon demand the full cost of such excess, or Landlord may cause such utility or service to be separately metered, in which case Tenant shall pay the full cost of such utility or service and reimburse Landlord upon demand for the cost of installing the separate meter. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of the failure by any person or entity to furnish any of the foregoing utilities or services when such failure is caused by any cause beyond the reasonable control of Landlord. 13. TAXES AND OTHER CHARGES All real estate taxes and assessments and other taxes, fees and charges of every kind or nature levied or assessed against the Project or any part thereof during the term by any federal, state, county, regional, municipal or other governmental or quasi-public authority shall be a Common Area Charge and payable by Tenant as set forth in paragraph 16. By way of illustration and not limitation, "other taxes, fees, and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the 11 net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to parking or the number of persons employed in or about the Project, and (vi) any tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord thereby shall also be a Common Area Charge and payable by Tenant as set forth in paragraph 16. In the event the premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants in the building or project or in the event alterations or improvements are made to the Premises, Tenant's percentage share of such taxes, assessments , fees and/or charges shall be adjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessors work sheet or such other information as may be reasonably available and Landlord's determination thereof shall be conclusive. Tenant at its cost shall have the right at any time to seek a reduction in the assessed valuation of the Premises or the Project or to contest any real property taxes, assessments, fees or other taxes that are to be paid by Tenant; provided, however, that any such contest or proceeding shall be at Tenant's sole cost and expense and provided further that Tenant shall hold Landlord and the Premises and the Project harmless therefrom. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord or any owner of the Premises. In that case Landlord shall cooperate and join in the proceeding or contest or permit it to be brought in Landlord's name as long as Landlord is not required to bear any cost. If Tenant seeks to reduce or contest any such tax, assessment, fee or other charge and if requested by Tenant, Landlord agrees to pay such tax, assessment, fee or charge under protest and to 12 otherwise deal with the appropriate authority in a manner consistent with Tenant's contest or proceeding and the applicable rules, regulations or procedures of such authority. In the event Tenant obtains any refund attributable to the Premises, such refund shall belong to Tenant. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become part of the Premises. 14. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times have, the right to enter the Premises (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers, lenders or tenants and to put 'for sale' or 'for lease' signs thereon, (iv) to post notices required or allowed by this lease or by law, (v) to alter, improve or repair the Premises and any portion of the Project, and (vi) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this paragraph and Tenant shall not be entitled to any abatement or reduction of rent if Landlord exercises any rights reserved in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on and about the Premises (excluding Tenants vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. 15. COMMON AREA Subject to the terms and conditions of this lease and such reasonable rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, 13 invitees and customers shall, in common with other occupants of the Project in which the Premises are located, and their respective employees, invitees and customers and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Project, which areas and facilities are referred to herein as "Common Area." This right shall terminate upon the termination of this lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice. Tenant shall have the use of one hundred sixty-eight (168) parking spaces in the Common Area as designated in Exhibit A. Tenant shall not label or otherwise mark its assigned parking spaces without the prior written approval of Landlord, provided that such approval shall not unreasonably be withheld. Tenant shall be solely responsible for policing its assigned parking spaces with respect to unauthorized use by others. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord, provided that such maintenance shall be in a manner equal to that usually provided for other first class buildings in the same general area as the Project. The cost of such maintenance, operation and management, including but not limited to landscaping, repair of paving, parking lots and sidewalks, security services and salaries and employee benefits (including union benefits) of on-site 14 and accounting personnel engaged in such maintenance and operations management, shall be a Common Area Charge and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16. 16. COMMON AREA CHARGES Tenant shall pay to Landlord, as additional rent, an amount equal to 28.63% of the total Common Area Charges as defined in this lease. Tenant further agrees that Common Area Charges shall include an additional 5% of the actual expenditures for the aggregate of all other Common Area Charges in order to compensate Landlord for accounting and processing services. Tenant's percentage share of Common Area Charges shall be paid as follows: At or prior to the commencement of the term and to the commencement of each calendar year of the term, Landlord shall deliver to Tenant a written estimate of total Common Area Charges during the balance of the calendar year in which the term commences and each succeeding calendar year, respectively. Tenant shall pay, as additional rent, on the first day of each month during the calendar year (or portion thereof covered by such estimate) its percentage monthly share of Common Area Charges as shown on such estimate. Within thirty (30) days of the end of each calendar year and of the end of the term, Landlord shall deliver to Tenant a statement of the actual Common Area Charges incurred for the preceding year, or, in the case of a statement after the end of the term, covering the year in which the lease terminates. If such statement shows that Tenant has paid less than its actual percentage then Tenant shall on demand pay to Landlord the amount of such deficiency. If such statement shows that Tenant has paid more than its percentage share then Landlord shall, at its option, promptly refund such excess to Tenant or credit the amount thereof to the rent next becoming due from Tenant. Landlord reserves the right to revise any estimate of Common Area Charges if actual or projected Common Area Charges show an increase or decrease in excess of 10% from any earlier estimate for the same period. In such event, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Landlord's and Tenant's obligations with respect to adjustments at the expiration or earlier termination of this lease shall survive such termination. 17. DAMAGE BY FIRE; CASUALTY If the Premises or any part of the Project is damaged by fire or other casualty, Landlord shall promptly repair such damage if, in Landlord's judgement, such repair 15 can be made within one hundred twenty (120) days consistent with the laws and regulations of the state, federal, county and municipal authorities having jurisdiction, and this lease shall remain in full force and effect, provided that if there shall be damage to the Premises from any such cause, Tenant shall be entitled to a reduction of rent, as reasonably calculated by Landlord, while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. Tenant hereby waives the provisions of Sections 1932 (2) and 1933 (4) of the California Civil Code. If such repairs cannot, in Landlord's judgement, be made within one hundred twenty (120) days, Landlord shall have the option to either (i) repair such damage, this lease continuing in full force and effect but with the rent proportionately reduced upon the condition and as above provided, or (ii) give notice to Tenant at any time within thirty (30) days after the occurrence of such damage terminating this lease as of the date specified in such notice, which shall be not less than thirty (30) nor more than one hundred twenty (120) days after the giving of such notice. If such notice of termination is given, this lease and all interest of Tenant in the Premises shall terminate on the date specified in the notice and all payments of rent reduced by any proportionate reduction, shall be paid up to the date of such termination. Landlord shall refund to Tenant any rent previously paid for any period of time subsequent to the date of termination. If (i) the damage to the Premises renders more than fifty percent (50%) of the Premises untenantable, (ii) the damage is not due to the act or omission of Tenant, and (iii) Landlord has not completed the repairs within one hundred eighty (180) days from the date of occurrence of such damage, then Tenant may terminate this lease by giving notice to Landlord at any time within thirty (30) days after the end of said one hundred eighty (180) day period, said notice to specify a termination date of no later than sixty (60) days from the date of such notice. Notwithstanding any other provision of this lease, Landlord shall in no event be required to repair any injury or damage by fire or other cause whatsoever to, or make any repairs or replacements of, any paneling, decorations, movable partitions, trade of office fixtures or any other property of, or improvements installed on the Premises by, Tenant. Notwithstanding anything to the contrary contained in this paragraph 17: (i) Tenant shall not be entitled to any compensation or damages for loss of use of the whole or any part of the Premises and/or for any inconvenience or annoyance occasioned by such damage or from the repair, restoration or reconstruction thereof; (ii) in the event that the damage is due to any cause other than fire or other peril covered by extended coverage insurance, then Landlord may 16 elect to terminate this lease; (iii) should Landlord be delayed or prevented from repairing the damaged Premises within one year after the occurrence of such damage by act of God, war, governmental restriction, inability to produce necessary labor or materials or other causes beyond the reasonable control of Landlord, then Landlord shall be relieved of its obligation to make such repair or restoration and Tenant shall be released from its obligation under this lease as of the end of said one-year period. 18. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the negligence of Landlord or its authorized representatives. Except as to injury to persons or damage to property the principal cause of which is the negligence of Landlord or its authorized representatives, Tenant shall hold Landlord harmless from and defend Landlord against any liability, loss, damage or expense, including attorney fees, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever. Tenant shall hold Landlord harmless from and defend Landlord against any liability, loss, damage or expense, including attorney fees, arising (i) out of the failure of Tenant to observe or comply with laws or other requirements as set forth in paragraph 7, (ii) by reason of Tenant's use, handling, storage or disposal of toxic or hazardous materials or waste, or (iii) by reason of any labor or services performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises. The provisions of this paragraph 18 shall survive the expiration or termination, however caused, of this lease. 19. ASSIGNMENT AND SUBLETTING Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first complying with the terms of this paragraph 19 and without first obtaining Landlord's written consent. Any assignment, encumbrance or sublease made without complying with this paragraph 19 and without Landlord's written consent shall be void and, at Landlord's election, shall constitute a material default by Tenant. No consent to any assignment, encumbrance or sublease shall constitute a waiver of any provisions of this paragraph 19. 17 If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than thirty (30) days or more than ninety (90) days after the date of such notice), the portions of the Premises proposed to be sublet or assigned, and the identity of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as requested by Landlord. In the case of any proposed assignment, or if the proposed sublet for all or any portion of the Premises is for a sublet term ending within the last twelve (12) months of the term of this lease, or if the proposed sublet is for more than 35% of the Premises, then Landlord shall have the right, exercisable by written notice to be delivered to Tenant within thirty (30) days of receipt of Tenant's notice, to terminate this lease as to the portion proposed to be assigned or sublet effective as of the date specified in Tenant's notice as the proposed commencement date of the assignment or sublease. If this lease is so terminated as to only a portion of the Premises, the monthly rent and other payments hereunder shall be adjusted on a pro rata basis based on the number of square feet retained by Tenant, and this lease as so amended shall continue in full force and effect, provided that Tenant shall have no further liability or obligation to Landlord with respect to such surrendered portion of the Premises (excepting obligations of Tenant arising prior to the effective date of such surrender and such obligations as expressly survive termination), and provided, further, that nothing herein shall affect Landlord's rights under paragraph 8 with respect to the surrendered protion of the Premises.) If Landlord does not elect to terminate this lease as provided above, or if Landlord did not have a right to terminate with respect to the proposed sublet, and Landlord consents in writing to the proposed assignment or sublet, Tenant shall be free to assign or sublet as specified in the notice to Landlord, subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet; (iv) one-half of any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rental or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such assignee or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is 18 obligated to pay Landlord under this lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Landlord as additional rent under this lease without affecting or reducing any other obligation of Tenant hereunder; and (v) no sublet or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease. Notwithstanding the above provisions of this paragraph 19, Tenant may, without obtaining the consent of Landlord and without Landlord having the right to terminate this lease as set forth above, assign or sublease the whole or any part of the Premises to any corporation or other entity which acquires or is acquired by LTX Corporation or which results from a merger or consolidation with LTX Corporation or which either controls or is controlled by LTX Corporation or which is controlled by any of the foregoing, provided that (i) Tenant shall continue to be fully obligated for the timely performance of all the terms, covenants, agreements and conditions of this lease and (ii) such assignee or subtenant agrees in writing to be subject to and governed by all of the terms, covenants, agreements and conditions of this lease and such agreement by assignee or subtenant is promptly given to Tenant. Tenant shall give Landlord written notice of any such assignment or sublease as provided above in this paragraph 19, and any such assignment or subletting shall be subject to the conditions for other assignments and sublettings set forth above. No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, 19 makes an assignment for the benefits of creditors or institutes, a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consist of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant. Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this lease, all rent from any subletting of all or a part of the Premises a permitted by this lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this lease: except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 19. 20. DEFAULT The occurrence of any of the following shall constitute a default by Tenant: (i) failure to pay any rent or other sum payable hereunder within three (3) business days of written notice from Landlord of failure to make such payment when due; (ii) abandonment of the Premises; or (iii) failure to perform any other term, covenant or condition of this lease if the failure to perform is not cured within thirty (30) days after notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be in default of this lease if Tenant commences to cure the default within the thirty (30) day period and diligently and in good faith continues to cure the default). The notice referred to in (iii) above shall specify the alleged default and the applicable lease provision and shall demand that Tenant perform the provisions of this lease within the applicable period of time and no such notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. No notice shall be required in the event of failure to pay any rent or other sum or in the event of abandonment or vacation of the Premises. 20 In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies at law or in equity, shall have the right either to terminate Tenant's rights to possession of the Premises and thereby terminate this lease or, from time to time and without termination this lease, relet the Premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover the installments of monthly rent and Common Area Charges as they become due, and to relet the Premises. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by landlords from such reletting shall be applied (i) to the payment of any indebtness due hereunder, other than monthly rent, from Tenant to Landlord; (ii) to the payment of the coast of any repairs necessary to return to the Premises to good conditions, normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises ant the time of the reletting; and (iii) to the payment of monthly rent due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease, shall be paid to Tenant. Should the monthly rent and Common Area Charges received from time to time from such reletting during any month be less than agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Should Landlord at any time terminate this lease for any breach in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and, in addi- 21 tion to all its other rights and remedies, shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) all amounts that would have fallen due as rent between the time of termination of this lease and the time of the judgement or other award plus interest on the balance at the rate of twelve percent (12%) per year, but less the avails of relettings and attornments; (ii) the worth at the time of the judgement or other award of the amount by which the unpaid rent for the balance of the term exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iii) any other amount necessary to compensate Landlord for all the detriment proximately cause by Tenant's failure to perform its obligations under this lease or which in the ordinary course of things would be likely to result therefrom. "Worth" as used in this provision is computed by discounting the total at the discount rate of the Federal Reserve Bank of San Francisco at the time of the judgment or award plus one percent (1%). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all there at a public or private sale in such a manner and at such times and places at Landlord in its sole discretion may deem proper, without notice to or demand upon Tenant. Any proof by Tenant under subparagraphs (2) and (3) of Section 1951.2(a) of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the Premises in the same geographical vicinity. Such two real estate and brokers shall select a third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the term after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. 21. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT Landlord, at any time after Tenant commits a default, can cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid, and if paid at 22 a later date shall bear interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. This sum, together with interest on it, shall be additional rent. 22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payment, income, rent, award of any interest therein whatsoever which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, any compensation for depreciation to and cost of removal of equipment and fixtures shall be and remain the property of Tenant. Each party waives the provisions of Section 1265.130 of the Code of Civil Procedure (which Section allows either party to petition the Superior Court to terminate this lease in the event or a partial taking of the premises). If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice or the commencement of said action or proceeding. Such termination shall take place on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event a partial taking, or conveyance in lieu thereof, of the Premises and thirty-five percent (35%) or more of the number of square feet in the Premises or in Tenant's designated parking area are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty 23 (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor. whichever occurs first. If a portion of the Premises be taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this lease then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. 23. NOTICE AND COVENANT TO SURRENDER On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of Tenant's improvements and alterations in their condition existing as of the commencement of the term, with all originally painted interior walls washed, or repainted if marked or damaged interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, the air conditioning and heating systems serviced and repaired by a reputable and licensed service firm (unless Landlord has elected to maintain such system pursuant to paragraph 9 above) and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord. Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8, from the Premises, and all such property not removed shall be deemed abandoned. If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss and liability resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claim made by any succeeding tenant, or losses to Landlord due to lost opportunities to lease to succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph shall survive termination of this lease. 24 24. TENANT'S QUITCLAIM At the expiration or earlier termination of this lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) business days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this lease from the real property of which the Premises are a part. This obligation shall survive said expiration or termination. 25. HOLDING OVER Any holding over after the expiration or termination of this lease (with the written consent of Landlord delivered to Tenant) shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord's right to re-entry or other rights hereunder or provided by law. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental in effect during the last month prior to the date of such expiration or termination. Tenant shall also indemnify and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises including, without limitation, any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right of re-entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent. 26. SUBORDINATION Landlord shall deliver to Tenant promptly after execution hereof a non-disturbance agreement from each and every lender holding a mortgage or deed of trust encumbering all or any portion of the Premises and which is prior and superior to this lease and in existence as of the date of execution hereof, which non-disturbance agreement shall 25 provide that such lender agrees that Tenant's possession and quiet enjoyment of the Premises shall not be disturbed by such lender so long as Tenant performs all of its obligations under this lease, and which shall otherwise be in form reasonably satisfactor to Tenant and such lender. In the event that any lender requires that this lease be subordinated to any encumbrance recorded after the date of this lease affecting the Premises, this lease shall be subordinate to that encumbrance and Tenant agrees to execute in writing an agreement effecting such subordination, provided Landlord first obtains from such lender a written agreement that provides in substance that as long as Tenant performs its obligations under this lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, shall affect Tenant's rights under this lease. 27. CERTIFICATE OR ESTOPPEL Each party shall, within ten (10) days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord, shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within ten (10) days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current quarterly financial reports of Tenant. 28. SALE BY LANDLORD In the event the original Landlord hereunder, or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn 26 to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations arising under this lease. 29. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at private trustee's foreclosure sale and to recognize such purchaser as the Landlord under this lease. 30. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than thirty (30) day period and thereafter diligently prosecutes the same to completion. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgement against Landlord, the judgement shall be satisfied only out of the proceeds of sale received on execution of the judgement and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency. 31. CONSTRUCTION CHANGES It is understood that the description of the Premises and the Location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord's architect determines to be desirable in 27 the course of construction of the Premises and/or the improvements constructed or being constructed thereon, and no such changes, or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant. 32. MEASUREMENT OF PREMISES Tenant understands and agrees that any reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of the partitions separating the Premises from the rest of the Project, and any outside entry overhang, if applicable. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in monthly rent or Common Area Charges or other amounts payable hereunder by reason of inaccuracies in such measurement. 33. EXHIBITS AND ATTACHMENTS All exhibits and attachments to this lease are a part hereof. 34. ATTORNEY FEES If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease, the Premises, or the Project by reason of any act or omission of the other party or its authorized representative, the party that causes the other party to become involved in the litigation shall be liable to that party for all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. 35. SURRENDER The voluntary or other surrender of this lease or the Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies. 28 36. WAIVER No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not a waiver of any other default concerning the same or any other provision of this lease. 37. EASEMENTS; AIRSPACE RIGHTS Landlord reserves the right to alter the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, or in accordance with Landlord's instructions, and any all documents, instruments, maps or plans necessary to effectuate Tenant's covenants hereunder. This lease confers no rights either with regard to the subsurface of the land on which the Premises are located or with regard to airspace above the ceiling of the Premises. Tenant agrees that no diminution or shutting off of light or view by an structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant. 29 38. RULES AND REGULATIONS Landlord shall have the right from time to time to promulgate reasonable rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Landlord shall make all reasonable efforts to enforce the rules and regulations uniformly against all tenants in the Project, and no such rules and regulations shall require Tenant to pay additional rent under this lease. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. 39. NOTICES All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. All such communications from Landlord to Tenant shall be addressed to Tenant at the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at 710 Lakeway, Suite 200, Sunnyvale, California 94086. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. 40. NAME Tenant shall not use the name of the Project for any purpose other than as the address of the business conducted by Tenant in the Premises without the prior written consent of Landlord. 41. GOVERNING LAW; SEVERABILITY This lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 30 42. DEFINITIONS As used in this lease, the following words and phrases shall have the following meanings: AUTHORIZED REPRESENTATIVE: any officer, agent, employee or independent contractor retained or employed by either party, acting within authority given him by that party. ENCUMBRANCE: any deed or trust, mortgage or other written security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement. LENDER: the beneficiary, mortgagee or other holder of an encumbrance, as defined above LIEN: a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens. MAINTENANCE: repairs, replacement, repainting and cleaning. PERSON: one or more human beings, or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations and any combination of human beings and legal entities. PROVISION: any term, agreement, covenant, condition, clause, qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party. RENT: monthly rent, additional rent, Common Area Charges, and all other amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. All provisions, whether covenants or conditions, on the part of Tenant shall be deemed to be 31 both covenants and condtions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. 43. TIME Time is of the essence of this lease and of each and all of its provisions. 44. EXAMINATION OF LEASE Submission of this lease for examination or signature by Tenant does not constitute a reservation or option for a lease, and this lease is not effective until its execution and delivery by both Landlord and Tenant. 45. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGES Any amount due from Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In additon, Tenant acknowledges that late payment by Tenant to Landlord of monthly rent, or of Tenant's monthly Common Area Charge, or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlored an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. No notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 20 shall not affect the imposition of such interest and/or late charge. 32 46. ENTIRE AGREEMENT This lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease. 47. CORPORATE AUTHORITY Each individual executing this lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this lease on behalf of Tenant and that this lease is binding upon Tenant in accordance with its terms. Tenant shall deliver to Landlord, within twenty (20) days of the execution of this lease, either a copy of a duly adopted resolution of the Board of Directors of Tenant approving this lease (which copy shall be certified by Tenant's president or secretary as correct and in full force and effect) or the certificate of Tenant's secretary setting forth the authority of the person signing this lease on behalf of Tenant in such form as shall be reasonably acceptable to Landlord. 48. RECORDING Upon request by Tenant, Landlord shall record this lease or a short form memorandum hereof in form reasonably satisfactory to Tenant. Tenant agrees to concurrently on termination or expiration of the term to execute and record a release, quitclaim or other document reasonably requested by Landlord. 49. REAL ESTATE BROKERS Each party represents that it has not had dealing with any real estate broker, finder or other person with respect to this lease in any manner, except Dick Treakle. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom the other party has or purportedly has dealt. 33 50. SUBLETTING DURING THE FIRST TWO YEARS OF THE TERM Notwithstanding anything to the contrary in paragraph 19 above, Tenant may, during the first two years of the term only and without Landlord's prior consent, sublet up to thirty-five percent (35%) of the Premises for a term ending on or before the last day of the twenty-fourth month of the term for uses authorized under paragraph 1 above (plus for storage); provided, however, that Tenant shall give written notice to Landlord of any such sublet, and such sublet shall otherwise be subject to the requirement and conditions for sublets generally as set forth in paragraph 19 (except that Landlord shall not be entitled to receive any portion of the amounts received by Tenant from any such sublet). IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease on the date first above written. LANDLORD: TENANT: CALIFORNIA SECOND, LTD. LTX CORPORATION By /s/ By /s/ Adrian E. Hohn -------------------------------- ------------------------------------- (Signature) (Signature) Steve S. M. Childers Adrian E. Hohn - ----------------------------------- ---------------------------------------- (Printed Name) (Printed Name) President Vice President Western Operations - ----------------------------------- ---------------------------------------- (Title) (Title) 34 EXHIBIT "A" [Map] EXHIBIT "B" [Map] CONSTRUCTION EXHIBIT C - ------------------------------------------------------------------------------- The premises shall be improved in accordance with the following: 1. Tenant acknowledges having reviewed the Drawings listed in Exhibit C-1 and the improvements constructed or to be constructed in accordance therewith, and Tenant hereby approves the same as installed. Such improvements are called Shell improvements. 2. Landlord shall construct Standard Tenant Improvements in accordance with the following: a. As used herein. "Standard Tenant Improvements" includes, but is not necessary limited to, partitions, doors, electrical, ventilation and air conditioning, floor coverings, telephone outlets and other standard finish schedules. b. The plans and specifications for the Standard Tenant Improvements shall be finalized in accordance with the following: (1) Tenant shall have submitted preliminary floor plan layouts to Landlord not later than March 2, 1984, showing walls, doors, and other Standard Tenant Improvements in sufficient detail for Landlord to prepare final plans ready to submit for a building permit. (2) Landlord's in-house architect shall prepare City ready plans no later than March 9, 1984. Between March 2 and March 9, Landlord's architect and Tenant representative shall meet as needed to review and finalize the details related to the plans, so that the resulting March 9, 1984 plans are subject only to minor changes. (3) Concurrently with the design of the basic plans set forth in (1) and (2) above, Landlord's contractor and subcontractors shall prepare bid design specifications outlining in reasonable detail the electrical, mechanical, and any other requirements not included on the plans set forth above. NO later tham March 9, 1984, said specifications and/or plans shall be completed in enough detail to bid the work, select a subcontractor, and proceed toward final electrical, mechanical and other plans in conformance therewith. Tenant shall supply Landlord with the necessary information and make decisions required thereby in a time frame adequate to complete the above. (4) Tenant shall have decided upon colors and material specifications no later than March 14, 1984. EXHIBIT C - page 2 (5) Landlord shall prepare a preliminary budget for these improvements no later than March 14, 1984, with a final budget to be set no later than March 21, 1984. c. All work shall be in accordance with the Work Letter attached as Exhibit C-2 and by this reference incorporated herein. 3. Standard Tenant Improvement Allowance: Landlord shall provide a maximum Standard Tenant Improvement Allowance of $840,960 ($20.00/SF x 42,048 SF) to be applied toward the "cost of the aggregate of Tenant's Improvements" to be installed in accordance with this Exhibit C. 4. The above allowance shall be applied to the area improved and occupied at the rate of $20.00 per square foot. In the event the "cost of the aggregate of Tenant's improvements" exceeds the Standard Tenant Improvement allowance set forth above, then Tenant shall pay the amount over and above such allowance, 50% of any excess to be paid within five (5) days of the final budget for each phase of improvements and 50% within five (5) days of lease commencement. As used herein, "cost of the aggregate of Tenant's improvements" shall include (i) the cost of Standard Tenant Improvements; (ii) increases, if any, in the cost of any Standard Tenant Improvements caused by changes requested by Tenant; (iii) all costs related to change orders and changes required by governmental authority; (iv) permit fees and other fees not previously paid by Landlord as part of Shell costs; (v) the cost of outside consultants approved by both Landlord and Tenant (except that Landlord shall pay for its general outside facilities consultants); (vi) an amount equal to 7% of the aggregate cost of items (i) through (v) above as and for the general contractor's miscellaneous job costs and supervision in performing the work; and (vii) an amount equal to 9% of the sum of items (i) through (vi) above as and for the general contractor's overhead and profit. EXHIBIT C - Page 3 5. Tenant may request changes or additions to the Standard Tenant Improvements agreed upon as set forth above; provided, however, that the effectiveness of any such requested change or addition shall be subject to written approval by an authorized representative of Landlord, to obtaining any required governmental permits or other approvals, and to Tenant's responsibility for any delay occasioned thereby as provided for in this lease. 6. Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any permit or approval, or otherwise, then such change, deletion or addition shall promptly be made. Failure to obtain governmental approval or permit for any Special Improvements desired by Tenant shall in no way be cause to terminate this lease. 7. If the commencement of the term is delayed due in a material respect to Tenant's failure to meet the schedule set forth in paragraph 2(b) above, or construction delays because of any changes required by Tenant, or due to any other failures by Tenant to perform its obligations under this lease, then the lease payments due thereunder shall nonetheless commence as of the date by which Landlord's work would have been, in Landlord's reasonable judgement, completed but for such delays or failure to perform by Tenant. 8. Within ten (10) days after commencement of the term, Tenant shall deliver to Landlord a list of items ("punch list") that Tenant believes Landlord should complete or correct in order for the Premises to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those that it contends are not justified. If Tenant does not deliver the list to Landlord within the ten (10) day period, Tenant shall be deemed to have accepted the Premises and approved the construction. Nothing in this paragraph 7 shall delay the commencement of the term or Tenant's obligation to pay rent or to make other payments due Landlord under the lease. 9. All references in this lease to Exhibit C shall be deemed to also include Exhibits C-1 and C-2. EXHIBIT C-1 SHELL IMPROVEMENTS Dated By C-1 thru C-4B 7-21-83 Nolte & Assoc. A thru A-14 4-25-83 V.C. Wong & Assoc. S-1 thru S-10 3-17-83 Kee Wong Eng. Inc. L-1 thru L-10 5-16-83 Hoffman Associates EXHIBIT C-2 WORK LETTER The purpose of this Work Letter is to outline specifications, guidelines, and allowances for Standard Tenant Improvements to be installed in the Premises by Landlord in addition to the Shell Improvements in place per Exhibit C-1. Landlord and Tenant acknowledge that the Standard Tenant Improvements have not yet been determined and that Landlord requires certain improvements to be installed and apportioned throughout the Premises based on the following guidelines. The following guidelines and specifications which set forth the basic requirements of Landlord to be conformed with during the design and installation of Tenant Improvements in the Premises: 1. FLOOR COVERINGS: The floor coverings in the Premises shall be standard Antron Nylon II carpet (or equivalent), vinyl asbestos tile (1/8"), or ceramic tile in the lobbies. Areas under computer floors, if any, or warehouse areas may remain concrete. 2. ELECTRICAL: A portion of the tenant electrical system is in place as referenced in Exhibit C-1. The balance of the finish electrical system may be installed as required by Tenant, subject to the following guidelines (based on 42,048 square feet): Minimum Maximum Amount Amount ------- ------- Duplex outlets, power poles, or floor outlets 1 per 200 S.F. 1 per 100 S.F. Switches (as needed) (as needed) Lighting 80 Foot Candles 100 Foot Candles Phone outlets (as needed) (as needed) 3. HEATING, VENTILATION AND AIR CONDITIONING (HVAC): The entire Premises shall be heated and air conditioned with a variable volume system, with no less than one (1) ton of air conditioning per 350 square feet on average. EXHIBIT C-2 - page 2 4. INTERIOR PARTITIONS: Interior partitions in the Premises shall be floor to ceiling vinyl covered ultrawall partitions or sheetrock partitions, all to be installed below the dropped ceiling where permitted by Building Codes and the City of San Jose. All partitions shall be one hour fire rated construction. Partitions shall be installed in the Premises as selected by Tenant within the following guidelines: The partitions shall be U.S. Gypsum ultrawall, and/or textured, painted (or vinyl covered) sheetrock partitions and carpet base as needed. Moveable partitions which are not permanently affixed floor to ceiling partitions, if any, shall be purchased directly from suppliers by Tenant and installed as furniture, with ownership being retained by Tenant. 5. DOORS AND FRAMES: Landlord and Tenant agree to use the doors in the Premises per the following guidelines: Doors shall be full height solid core. Doors shall have automatic door closers or spring loaded hinges where required by code (or desired by Tenant) including oil rubbed bronze finish hardware. Location and number of latchsets and locksets shall be selected by Tenant. All doors shall have dark bronze aluminum frames throughout the Premises (both in sheetrock and ultrawall partitions). 6. CEILING: Landlord requires standard dropped ceiling in all areas except warehouses. All Tenant Improvement work to be performed in the Premises shall be performed by Landlord's Contractor in accordance with union requirements. STATE OF CALIFORNIA ) ) SS County of San Francisco ) On this 15th day of March, in the year 1985, before me, Holly Adams Cowan, Notary Public in and for the State of California, personally appeared Don L. Dornan and___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) who executed the within instrument as Vice President or on behalf of Wells Fargo Bank, N.A. and acknowledged to me that said Bank executed same pursuant to its bylaws. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the County of San Francisco the day and year in this certificate first above written. [SEAL] /s/ Holly Adams Dornan ---------------------- NOTARY PUBLIC State of California My Commission Expires: March 21,1986 ---------------------- STATE OF CALIFORNIA) SS COUNTY OF SANTA CLARA) On this the 28th day of March, 1985, before me, P.A. Jones, the undersigned Notary Public, personally appeared Michael J. Chalker, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as President or on behalf of Trillium Corporation and acknowledged to me that said corporation executed it. WITNESS my hand and official seal. [SEAL] /s/s P.A. Jones --------------------- Notary's Signature EXHIBIT C-4 STANDARD TENANT IMPROVEMENTS LAYOUT SPECIFICATIONS The Standard Tenant Improvements shall be constructed in compliance with the following layout specifications: 1. Private offices no smaller than 110 square feet per office. 2. HVAC zonings as recommended by Landlord's mechanical engineer. Zones shall be distributed at an average ratio of approximately one (1) zone per each 1,000 to 1,500 square feet of floor space. 3. Electrical capacity and design as recommended by Landlord's electrical subcontractor and distributed according to the following schedule:
Minimum Maximum Amount Amount ------ ------ Duplex outlets, power poles, or floor outlets (for office areas only) 1 per 200 S.F. 1 per 100 S.F. Switches (as needed) (as needed) Lighting 80 Foot Candles 100 Foot Candles Phone Outlets (as needed) (as needed)
4. All restroom finishes to match those installed in or planned for the building if such other restroom finishes have been determined by the date of this Lease. 5. Interior partitions shall be installed above the floor covering and below the ceiling where permitted by Building Codes and the City of San Jose. 6. Dropped ceiling shall be installed in a minimum of 40% of the Premises. 7. All Tenant Improvement work to be performed in the Premises shall be performed by Landlord's Contractor in accordance with union requirements. 8. All handicap and fire sprinkler codes shall be conformed with as required by the City of San Jose. May 7, 1984 FIRST ADDENDUM TO LEASE To that certain lease by and between California Second, Ltd., Landlord, and LTX Corporation, Tenant, for approximately 42,048 square feet located at 3970 North First Street, San Jose, California, dated March 8, 1984 ("Lease"). RECITALS: 1. Landlord and Tenant entered into the Lease with Landlord providing a Standard Tenant Improvement Allowance of $840,960.00 ($20.00/SF x 42,048 SF) ("Allowance") for tenant improvements to be installed in the Premises. The Monthly Rent established in the Lease was based on the Allowance. 2. In the event the Cost of The Aggregate of Tenant's Improvements exceeded the Allowance, Tenant agreed to pay the amount over and above such Allowance, 50% of any excess to be paid within five (5) days of the final budget and 50% within five (5) days of Lease commencement. 3. The final budget exceeds the Allowance more than originally anticipated by Tenant. 4. Tenant requests that Landlord increase Allowance to $925,056.00 ($22.00/SF x 42,048 SF) ("Maximum Allowance"), with the rent to be increased to the amounts set forth below at the rate of $20.00 per month for every $1,000.00 increase in the Allowance, and Tenant being responsible for costs above the Maximum Allowance. 5. In establishing the improvements, delays were caused by Tenant totalling thirty (30) days, thereby causing the Lease to commence thirty (30) days prior to the date which would otherwise be established by the provision of paragraph 2(b) of the Lease. Fifteen (15) of the thirty (30) days delay were acknowledged in the letter of March 19, 1984, and fifteen (15) days additional delay caused by Tenant are hereby acknowledged. 6. At Tenant's request, Landlord agrees to defer payment of any amounts in excess of the Maximum Allowance to September 1, 1984. THEREFORE, the parties agree as follows: 1. Tenant requests and Landlord hereby provides the Maximum Allowance of $925,056.00 as defined in Exhibit C, Item 4 of the Lease. Tenant agrees to pay cash on or before - 1 - September 1, 1984, for the improvement Costs to the extent the Final Budget (established per paragraph 2(b) 5 of Exhibit C to the Lease), as adjusted for change orders or revised by Landlord prior to Lease commencement, exceeds the Maximum Allowance. In the event Tenant does not pay said amount on or before September 1, 1984, Tenant shall be in default of the Lease. 2. Notwithstanding the provisions of Exhibit C of the Lease, the Final Budget of $1,086,649.00 and resulting payment of $161,593.00 representing the excess of the Cost of The Aggregate of Tenant's Improvements over the maximum Allowance shall be a fixed amount, plus or minus any change orders requested by Tenant. Landlord shall not be required to reconcile or document the actual job costs in any way. 3. Monthly Rent Revisions a. The Monthly Rent of $32,220.00 set forth in paragraph 4(a) of the Lease is hereby increased by $1,681.92 per month to $33,901.92 per month ($925,056.00 - $840,960.00 = $85,096.00 divided by $1,000.00 x $20.00). b. The Agreement Letter dated March 19, 1984, stated that the first month's rent deposit in the amount of $32,220.00 was due June 1, 1984. The date for payment of the deposit is hereby revised to June 15, 1984 and the first month's rent deposit is increased to $33,901.92 (as set forth above) to be applied against the rent for the first full month of term. c. The adjustments to Monthly Rent set forth in paragraph 5(a) of the Lease is hereby amended as follows: Months 11 - 36 $47,093.76 Months 37 - 48 $52,514.92 Months 49 - 60 $55,264.92 d. The Maximum Revised Base Rent figure of $1.59 per square foot per month set forth in paragraph 5(b), line 21, shall be increased to $1.65 per square foot per month. 4. Tenant agrees that prior to receipt of complete and final information to proceed with construction, there was a delay totalling thirty (30) days. Therefore, pursuant to Exhibit C, Item 6 and not withstanding anything to the contrary in paragraphs 2 and/or 3 of the Lease, the Lease shall commence and Tenant shall pay the rent and other charges the thirty (30) days prior to the commencement date as otherwise determined in accordance with paragraph 2(b) of the Lease, provided that in no event shall the Lease commence prior to June 15, 1984. - 2 - LANDLORD: TENANT: CALIFORNIA SECOND, LTD. LTX CORPORATION McCandless Partnership /s/ Birk S. McCandless /s/ Adrian E. Hohn - ------------------------------ ------------------------------ (Signature) (Signature) Birk S. McCandless Adrian E. Hohn - ------------------------------ ------------------------------ (Printed Name) (Printed Name) President Vice President Western Operations - ------------------------------ ------------------------------ (Title) (Title) 6/4/84 May 18, 1984 - ------------------------------ ------------------------------ (Date) (Date) - 3 - ADDENDUM NO. 2 THIS ADDENDUM NO. 2 (hereinafter "Amendment"), is made this 30 day of May, 1990, by and between CALIFORNIA SECOND., LTD. a Florida limited partnership ("Landlord") and LTX CORPORATION, a Massachusetts corporation ("Tenant"). RECITALS A. Tenant currently leases from Landlord approximately forty-two thousand forty-eight (42,048) square feet of space at 3970 North First Street, San Hose, California ("Premises") pursuant to that certain lease dated March 8, 1984 as amended by that certain First Addendum to Lease dated May 7, 1984 (the lease as amended shall herinafter be referred to as the "Lease"). B. Pursuant to paragraph 5 of the Lease, on the first day of the sixty- first (61st) month of the term the monthly rent was adjusted to market rent and beginning with the seventy-third (73rd) month of the term and every year thereafter, such monthly rent is to be adjusted in accordance with any increases in the Consumer Price Index. C. Landlord and Tenant desire to amend the Lease to set forth a flat rate monthly rent to take effect upon execution of this Amendment and to continue in effect for the remainder of the term. NOW, THEREFORE, the parties hereto agree to the following: 1. BASIC RENT. Upon execution of this Amendment by the parties hereto, the monthly rent as set forth in paragraph 4 (a) and as adjusted prior to the execution hereof, shall be Fifty-Nine Thousand Six Hundred Eighty-Six and 11/100 Dollars ($59,686.11) per month and shall remain at said amount for the remainder of the term. 1 2. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions of the Lease shall remain in full force and effect except as specifically modified herein. IN WITNESS WHEREOF, the parties execute this Amendment on the date set forth below their signature. LANDLORD: TENANT: CALIFORNIA SECOND, LTD., LTX CORPORATION, a Florida limited partnership a Massachusetts corporation By: McCandless Partnership, a California limited partnership, a General Partner By: /s/ By: /s/ David A. Adley --------------------------- ------------------------------ Birk S. McCandless, as (Signature) Trustee under the Birk S. McCandless and Mary David A. Adley McCandless Inter Vivos ------------------------------- Trust Agreement dated (Printed Name) February 17, 1982, a V.P. Administration General Partner ------------------------------- (Title) 5/30/90 5/30/90 ----------------------------- -------------------------------- (Date) (Date) 2 THIRD AMENDMENT TO LEASE THIS THIRD AMENDMENT TO LEASE (this "Third Amendment") is made this 17th day of February, 1994 by and between CALIFORNIA SECOND, LTD,. a Florida limited partnership ("Landlord") and LTX CORPORATION, a Massachusetts corporation ("Tenant"). RECITALS A. Tenant currently leases from Landlord approximately forty-two thousand forty-eight (42,048) square feet of space located at 3970 North First Street, San Jose, California (the "Premises") pursuant to that certain lease dated March 8, 1984, as amended by that certain Addendum No. 1 dated May 7, 1984, as further amended by that certain Addendum No. 2 dated May 30, 1990 (collectively, the "Lease"). B. The Lease provides for a termination date of June 20, 1994. C. Landlord and Tenant desire to extend the term of the Lease on the terms and conditions specified herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and promises contained herein, the parties hereto agree to amend the Lease as follows: 1. TERM. THe term of the Lease is hereby extended to June 20, 1999. The five (5) year period commencing on June 21, 1994 and ending on June 20, 1999 is referred to herein as the "Extended Term." 2, Basic Rent. The basic rent for the period commencing January 1. 1994 through June 20, 1994 is modified as specified below and the basic rent during the Extended Term is as specified below: January 1, 1994 through May 31, 1994 $31,788.29 per month 1 June 1, 1994 through June 20, 1994 $21,192.19 (total for the twenty (20) day period) June 21, 1994 through $9,563.12 (total for June 30, 1994 the ten (10) day period) July 1, 1994 through June 20, 1999 $28, 689.35 per month 3. OPTION TO EXTEND TERM. Landlord grants to Tenant the option to extend the term for one period of five (5) years (the "Second Extended Term") following the expiration of the Extended Term set forth in paragraph 1 under all the provisions of this Amendment except for the amount of the basic rent. The basic rent for the Second Extended Term shall be adjusted to ninety-five percent (95%) of the market rate provided that in no event shall the basic rent for the Second Extended Term be less than the Basic rent in effect at the expiration of the Extended Term. This option is further subject to the following terms and conditions: (a) Tenant must deliver its irrevocable written notice of Tenant's exercise of this option to Landlord not less than six (6) lease months, nor more than twelve (12) lease months, prior tot he expiration of the Extended Term. Time is of the essence with respect to the time period during which Tenant must deliver to Landlord its written notice of exercise and , therefore, if Tenant fails to give Landlord its irrevocable written notice of its exercise of this option within the time period provided above then this option shall expire and be of no further force or effect. (b) The parties shall have thirty (30) days from the date Landlord receives Tenant's notice of exercise in which to agree on the amount constituting the market rate. If Landlord and Tenant agree on the amount f the market rate. If Landlord and Tenant agree on the amount of the market rate, they shall immediately execute an amendment to this lease setting forth the expiration date of the Second Extended Term and the amount of the basic rent to be paid by Tenant during the Second Extended Term. If Landlord and Tenant are unable to agree on the amount of the market rate within such time period, then, at the request of either party, the market rate shall be determined in the following manner: (i) within thirty (30) days of the request of either party, Landlord and Tenant shall each select a licensed real estate appraiser with not less than five (5) years primary experience in the business of appraising commercial property and commercial leases of property of the same type use and in the same geographic area as the 2 Premises; (ii) within fifteen (15) days of their appointment, such two real estate appraisers shall select a third appraiser who is similarly qualified; (iii) within thirty (30) days from the appointment of the third appraiser, the three appraisers so selected shall, acting as a board of arbitrators, then determine the amount of the market rate, basing their determination on standard procedures and test normally employed in determining market rates and applying the factors included within the definition of market rate set forth in subparagraph (c) below. The decision of the majority of said appraisers shall be final and binding upon the parties hereto. If a majority of the appraisers are unable to agree on the market rate within the stipulated period of time, the three opinions of the market rate shall be added together and their total divided by three; the resulting quotient shall be the market rate. If, however, the low opinion and/or the high opinion are/is more than 15% lower and/or higher than the middle opinion, the low opinion and /or the high opinion , as the case bay be, shall be disregarded. If only one opinion is disregarded, the remaining two opinions shall be added together and their total divided by two and the resulting quotient shall be the market rate. If both the low opinion and the high opinion ar disregarded as stated in this paragraph, the middle opinion shall be the market rate. If a party does not appoint a qualified appraiser within the required time period the appraiser appointed by the other party shall be the sole appraiser and shall determine the market rate. If the two appraisers appointed by the parties are unable to agree on the third appraiser, either of the parties to the lease, by giving ten (10) days ' notice to the other party, can apply to the then president of the county real estate board of the county in which the Premises are located, or to the presiding judge of the superior court of that county, for the selection of a third appraiser who meets the qualifications stated in this paragraph. Each party shall pay the expenses and charges of the appraisers appointed by it and the parties shall pay the expenses and charges of the third appraiser in qual shares. When the market rate has been so determined, Landlord and Tenant shall immediately execute an amendment to this lease stating the basic rent for the Second Extended Term. (c) As used herein, the "market rate" shall be the monthly rent (triple net) then obtained for five (5) year fixed rent leases of comparable terms for premises in the Project and in buildings and/or projects within the same geographical area of similar types and identity, quality and location as the Project. (d) Common area charges shall continue to be determined and payable as provided in paragraph 16 of the Lease. (e) Tenant shall not assign or otherwise transfer this option or any interest therein and any attempt to do so shall render this option null and void. Tenant shall have no right to 3 extend the term beyond the Second Extended Term. If Tenant is in default under the Lease as amended hereby at the date of delivery of Tenant's notice of exercise to Landlord, then such notice shall be of no effect and this lease shall expire at the end of the Second Extended Term. If Tenant is in default under this lease at the last day of the Extended Term, then Landlord may in its sole discretion elect to have Tenant's exercise of this option be of no effect, in which case this lease shall expire at the end of the Extended Term. 4. INSURANCE. Landlord's obligations to obtain and keep in force certain insurance policies, as specified in paragraph 11 of the Original Lease, is hereby modified to provide that Landlord may, but shall not be obligated to, obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of such insurance shall be a Common Area Charge as provided in paragraph 11. 5. ALTERATIONS. With respect to alterations made to the Premises from and after the date of this Amendment, paragraph 8 of the lease is hereby modified to provide that with respect to such alterations which Tenant is required by Landlord to remove at the end of the lease term, in addition to removing the alteration and repairing any damage to the Premises caused by such removal and complying with the surrender provisions in paragraph 23 of the lease, Tenant shall also be obligated to restore the Premises to their condition as it existed prior to Tenant making such alteration. Tenant's obligation to remove, repair and restore with respect to alterations which Tenant has made to the Premises prior to the date of this Amendment shall be governed by the Lease and such agreements as the parties previously agreed without modification by the preceding sentence. 6. REAL ESTATE BROKERS. Each party represents and warrants to the other party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this Amendment except Cooper Brady. Except as to commissions and fees to be paid as provided in this paragraph, each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorney's fees and related costs) arising out of or resulting from any claims for commissions or fees that may or have been asserted against the other party by any broker, finder or other person with whom Tenant or Landlord has or purportedly has dealt with in connection with the Premises and the negotiation and execution of this Amendment. To the extent agreed to between Landlord and Cooper Brady, Landlord shall pay all broker leasing 4 commissions to Cooper Brady in connection with this transaction. Landlord and Tenant agree that Landlord shall not be obligated to pay any broker leasing commissions arising out of or relating to any extended term beyond the Extended Term or to any expansion or relocation of the Premises at any time. 7. MODIFICATION TO ENTRY BY LANDLORD PROVISION. Paragraph 14 of the Original Lease is hereby modified by adding the following language at the end of said paragraph 14: "Notwithstanding anything to the contrary contained in this paragraph 14, Landlord may not enter the Premises without Tenant's consent, except in the case of emergency, unless Landlord has given Tenant at least twenty-four (24) hours prior notice of its intent to enter. In any event, entry by Landlord shall not unreasonably interfere with Tenant's use of the Premises." 8. MODIFICATION OF COMMON AREA CHARGES PROVISION. Paragraph 16 of the Original Lease is hereby modified by replacing the second sentence in the first subparagraph of paragraph 16 in its entirety with the following sentence: "Tenant further agrees that Common Area Charges shall include an additional 5% of the actual expenditures for the aggregate of all other Common Area Charges (excluding any management fees) in order to compensate Landlord for accounting and processing services." 9. MODIFICATION OF DEFAULT PROVISION. Paragraph 20 of the Original Lease is hereby modified by deleting the last sentence of the first subparagraph in its entirety and substituting in lieu thereof the following sentence: "No notice shall be required in the event of failure to pay any rent or other or other sum or in the event of abandonment or vacation of the Premises, except as required by California law." 10. REPAIR AND MAINTENANCE. The second subparagraph of paragraph 9 of the Lease regarding Repair and Maintenance is hereby 5 modified by deleting the second subparagraph in its entirety and substituting in lieu thereof the following second subparagraph: "Subject to the provisions of paragraph 17, Landlord shall keep and maintain the roof and structural elements of the building constituting the Project, and Common Area, in good order and repair. As used herein, "roof" is defined as the building's roofing membrane and tiles, and "structural elements" is defined as the building's foundation, slab-on- crate, columns, shear walls, floor trusses, metal deck and concrete fill, and the roof beams, purlins and roof plywood. Further, if the interior walls are damaged by a casualty and insurance proceeds are paid to Landlord for such damage and in an amount sufficient do repair such damage, then Landlord shall promptly repair such damage. In all other cases, damage to the interior walls (whether caused by an uninsured casualty or otherwise) shall be the Tenant's responsibility as provided above. Tenant waives all rights under and benefits of California Civil Code Sections 1932(1), 1941 and 1942 and under any similar law, statute or ordinance now or hereafter in affect. The cost of the repairs and maintenance which are the obligation of Landlord hereunder shall be a Common Area Charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16; provided, however, that if Landlord replaces the entire roof of the building containing the Premises during the term, Landlord shall bear the cost thereof and no part thereof shall be included in a Common Area Charge and provided, further, that if any repairs or maintenance are required because of an act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full costs of such repair or maintenance. Notwithstanding anything to the contrary in this paragraph above, any capital improvement to the structural elements (as defined above), which is not required by reason of Tenant's specific use of or activities on the Premises, which are required to be made by Landlord shall be made by Landlord, and the cost thereof shall be included within Common Area Charges ratably 6 Over the useful life of such capital improvement and Tenant shall pay its proportionate share thereof. The determination of what constitutes a "capital improvement" and the useful life of the capital improvement shall be made by Landlord in accordance with generally accepted accounting principles." 11. INSURANCE. The first subparagraph of paragraph 11 of the Original Lease regarding Insurance is hereby modified by deleting the first subparagraph in its entirety and substituting in lieu thereof the following first subparagraph: "Tenant, at its sole cost and expense, shall keep in force during the term (i) public liability insurance with limits of at least $2,000,000 per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Project, and property damage insurance with limits of at least $2,000,000 per occurrence (which insurance may, or may not, without obligation, include flood and/or earthquake insurance coverage and Tenant shall have no liability to Landlord for electing not to obtain flood and/or earthquake insurance) and (ii) Worker's Compensation insurance as required by the State of California. All such policies shall be primary and shall provide that said insurance shall not be cancelled or reduced except upon (a) at least thirty (30) days prior written notice to Landlord if such cancellation or reduction results from any reason other than non-payment of premium or (b) at least ten (10) days prior written notice to Landlord if such cancellation or reduction results from non-payment of premium. Further, Tenant's public liability insurance shall name Landlord as Additional Insured using ISO Bureau Form G109 or G112001 (or a successor form), shall contain cross-liability endorsements, and shall be issued by an insurance company admitted to transact business in the State of California. Landlord agrees to pay on demand up to $25 for the Additional Insured Endorsement." 7 The third subparagraph of paragraph 11 of the Original Lease is hereby modified by adding the following sentence to the end of the third subparagraph: "The amount of the deductible which Landlord may pass through to Tenant as a Common Area Charge shall not exceed commercially reasonable amounts (i.e. deductible amounts which are customarily provided by insurance companies for comparable insurance on similar projects to this Project, or customarily obtained by landlords in similar situations). Deductibles up to $10,000 per incident shall be conclusively presumed to be commercially reasonable for purposes of this paragraph." 12. DAMAGE BY FIRE; CASUALTY. The second subparagraph of paragraph 17 of the Lease is hereby modified by deleting clause (ii) in its entirety and substituting in lieu thereof the following clause (ii): "(ii) in the event that the damage is due to any cause other than fire or other peril covered by the insurance required by paragraph 11, then Landlord may terminate this lease;" 13. INDEMNIFICATION. The second sentence of paragraph 18 of the Lease regarding Indemnification is hereby modified by deleting the second sentence of paragraph 18 in its entirety and substituting in lieu thereof the following second sentence: "Except as to injury to persons or damage to property, the principal cause of which is the negligence of Landlord or its authorized representatives, Tenant shall hold Landlord harmless from and defend Landlord against any liability, loss, damage or expense, including reasonable attorneys' fees, arising out of any injury to or death of any person or damage to or destruction of property (other than Landlord's property) occurring in, on or about the Premises from any cause whatsoever." 14. NOTICE AND COVENANT TO SURRENDER. The first sentence of the first subparagraph of paragraph 23 of the Lease regarding 8 Notice and Covenant to Surrender is hereby modified by deleting such first sentence in its entirety and substituting in lieu of thereof the following first sentence: "On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of Tenant's improvements and alterations in their condition existing as of the commencement of the term, normal wear and tear excepted, and all floors clean, all to the reasonable satisfaction of Landlord." 15. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified above, all other terms, covenants and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the date first set forth above. LANDLORD: TENANT: CALIFORNIA SECOND, LTD., LTX CORPORATION, a Florida limited partnership a Massachusetts corporation By: McCandless Partnership, By: /s/ David A. Adey a California general partnership, -------------------------- A General Partner (Signature) David A. Adey By: /s/ Birk S. McCandless -------------------------- -------------------------------- (Printed Name) Birk S. McCandless, as Trustee under the Birk S. McCandless Senior Vice President Administration and Mary McCandless Inter -------------------------- Vivos Trust Agreement dated (Title) February 17, 1982, a General Partner February 17, 1994 -------------------------- (Date) 9 FOURTH AMENDMENT TO LEASE THIS FOURTH AMENDMENT TO LEASE (this "Fourth Amendment") is made this day of , 1994 by and between CALIFORNIA SECOND, LTD., a -------------------- limited partnership ("Landlord") and LTX CORPORATION, a Massachusetts corporation ("Tenant"). RECITALS A. Tenant currently leases from Landlord approximately forty-two thousand forty-eight (42,048) square feet of space located at 3970 North First Street, San Jose, California (the "Premises") pursuant to that certain lease dated March 8, 1984, as amended by (i) that certain First Addendum to Lease dated May 7, 1984, (ii) that certain Addendum No. 2 dated May 30, 1990, and (iii) that certain Third Amendment to Lease dated February 17, 1994 (collectively, the "Lease"). B. Tenant desires to enter into a sublease (the "Sublease") with Novellus Systems, Inc., a California Corporation ("Novellus") to be executed substantially concurrently herewith, which requires certain modifications to the Lease, as more specifically provided hereinbelow. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, the parties hereto agree to amend the Lease as follows: 1. OPTION TO EXTEND TERM. Paragraph 3(e) of the Third Amendment to Lease is hereby modified by adding a new sentence which shall be inserted after the first sentence of such subparagraph, which shall read as follows: "Notwithstanding the preceding sentence, Tenant shall be permitted to assign its rights under this option to Novellus Systems, Inc., in connection with that certain Sublease Agreement to be executed substantially concurrently herewith." 2. ALTERATIONS. Paragraph 8 of the Master Lease is hereby modified by adding the following subparagraph at the end of Section 8: 1 "Notwithstanding any provision to the contrary, Landlord agrees that it will not unreasonably withhold or delay its consent to alterations that comport with the proposed tenant improvements specified in Paragraph 2.9 of the Sublease and Exhibit B attached thereto and construction thereof otherwise complies with all other terms of this Paragraph 8." 3. NOTICE AND COVENANT TO SURRENDER. Paragraph 23 of the Lease, "Notice and Covenant to Surrender" is hereby modified by deleting the first sentence of paragraph 23 in its entirety and substituting in lieu thereof the following: "On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender the Premises and all of Tenant's improvements and alterations in their condition as they will exist upon completion of the improvements contemplated in paragraph 2.9 of the Sublease and as described in Exhibit B attached thereto, reasonable wear and tear excepted. Landlord acknowledges that Tenant shall have no obligation to restore the Premises to its condition existing at the commencement of the term." 4. ENVIRONMENTAL MATTERS. The following section regarding "Environmental Matters" is hereby added to the Lease as paragraph 51: "51. ENVIRONMENTAL MATTERS A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS. (1) HAZARDOUS MATERIALS HANDLING. Except as specifically provided in paragraph 51.D below, Tenant, its agents, invitees, employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present or permit the use, storage, disposal, release or presence of Hazardous Materials (as defined below) on or about the Premises or Proejct. As used herein "Hazardous Materials" shall mean any petroleum or petroleum by-products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", "hazardous materials', "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof. 2 (2) NOTICES. Tenant and Novellus Systems, Inc. (as a Subtenant who is bound to comply with the terms of the Master Lease) shall immediately notify Landlord in writing of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant or Novellus, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant and Novellus shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant or Novellus first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's or Novellus' use thereof. Tenant and Novellus shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. B. INDEMNIFICATION OF LANDLORD. Tenant and Novellus shall indemnify, defend (by counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any hazardous Materials which is caused by Tenant's or Novellus' use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, (ii) Tenant's or Novellus' failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally, or (iii) any breach or inaccuracy in any of the representations or warranties made by Tenant or Novellus herein, or any breach of any of the obligations of Tenant or Novellus contained in this paragraph 51. Tenant's and Novellus' obligations as specified in the preceding sentence shall include, without 3 limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. In addition, Tenant and Novellus shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant's or Novellus' use, storage or disposal of Hazardous materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's or Novellus' use, storage, or disposal of Hazardous Materials including, without limitations, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's or Novellus' use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 51, any acts or omissions of Tenant or Novellus, or by employees, agents, assignees, subtenants (including specifically Novellus), contractors or subcontractors of Tenant or Novellus or others acting for or on behalf of Tenant or Novellus (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant and Novellus. C. SURVIVAL. The provisions of this paragraph 51, including without limitation the rights and obligations in paragraphs 51.A, 51.B, 51.C, 51.D, 51.E, shall survive the expiration or earlier termination of the term of the Lease. D. PERMITTED HAZARDOUS SUBSTANCES. Landlord hereby acknowledges that notwithstanding paragraph 51.A(1)(a) above, Tenant has requested Landlord's consent to the potential use, storage, generation, treatment and disposal at the Premises of the Hazardous Materials, a list of which shall be provided to Landlord prior to Tenant's use of any hazardous substances (the "Permitted Hazardous Substances") by Novellus Systems, Inc., a California Corporation ("Novellus") in connection with a proposed sublease to Novellus. Tenant's use of the Permitted Hazardous Substances is subject to Landlord's reasonable consent. In consideration of, and in reliance upon, the representations and warranties of Tenant and Novellus set forth in this paragraph 51.D which shall be provided to Landlord prior to Tenant's use of any hazardous substances, and the additional covenants of Tenant and Novellus set forth in paragraph 51.E below, Landlord will not unreasonably withhold its consent to the use (hereinafter defined) of the Permitted Hazardous Substances by Novellus as a subtenant of Tenant, subject to the representations, warranties, covenants and terms contained in this paragraph 51. Tenant and Novellus hereby represent and warrant to Landlord as follows (which representations and warranties shall survive the expiration or earlier termination of this lease): 4 1. Novellus has obtained the following EPA generator number: - ---------------. 2. Attached as Exhibit B is a true, correct, and complete description of the uses or processes involving the Permitted Hazardous Substances (the "Use"), which includes (i) quantities, storage or handling procedures, (ii) whether any waste Hazardous Materials are generated and (iii) the disposal procedures required therefor. Novellus has obtained the following governmental permits or approvals regarding its Use of the Permitted Hazardous Substances (copies of which have been delivered to Landlord), all of which permits and approvals are in full force and effect: A. ------------------------------------------- B. ------------------------------------------- C. ------------------------------------------- D. ------------------------------------------- Novellus has made the following filings with governmental agencies regarding its Use of the Permitted Hazardous Substances (copies of which have been delivered to Landlord): A. ------------------------------------------- B. ------------------------------------------- C. ------------------------------------------- D. ------------------------------------------- Except for the foregoing permits and filings, Novellus represents that no further action is required in connection with Novellus' Use of the Permitted Hazardous Substances in compliance with applicable laws. 3. Waste Hazardous Material generated as a result of the Use of the Permitted Hazardous Substances is or will be: (i) disposed of by the following licensed disposal company: , at the following site: - --------------------------------------------- ----------. (ii) one hundred percent (100%) recycled as 5 described in Exhibit E. 4. Novellus is not currently the subject of any regulatory investigation, inquiry, order or proceeding regarding Novellus' use of Hazardous Materials. E. Tenant and Novellus agree to the following additional provisions: (1) COMPLIANCE WITH ENVIRONMENTAL LAWS: Tenant and Novellus shall at all times and in all respects comply with all Hazardous Materials Laws. (2) HAZARDOUS MATERIALS HANDLINGS: Novellus shall at its own expense procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Novellus' use of the Premises. Novellus shall cause any and all Hazardous Materials removed from the Premises and the Project to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Novellus shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Premises or the Project in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. All reporting obligations imposed by Hazardous Materials Laws are strictly the responsibility of Novellus. Novellus is and shall be deemed to be the "operator" "in charge" of Novellus' "facility" and the "owner" of all Permitted Hazardous Substances and Hazardous materials generated or resulting therefrom as such terms are used in the Hazardous Materials Laws. (3) ADDITIONAL INSURANCE OR FINANCIAL CAPACITY: If at any time Landlord in its good faith business judgment determines that Tenant is not maintaining sufficient insurance or other means of financial capacity to enable Tenant to fulfill its obligation to Landlord hereunder, whether or not then accrued, liquidated, conditional or contingent, Tenant shall procure and thereafter maintain in full force and effect such insurance or other form of financial assurance, with or from companies or persons and in forms reasonably acceptable to Landlord, as Landlord may from time to time request. Landlord may procure such insurance if Tenant fails to meet its obligation hereunder and the costs thereof shall be passed through to Tenant and payable by Tenant to Landlord promptly upon demand by Landlord. (4) ENVIRONMENTAL AUDIT; RIGHT OF ENTRY: Landlord shall have the right to enter the Premises from time to time upon reasonable notice to inspect the Premises for compliance with the provisions of this Paragraph 51. If Tenant is using or has used Hazardous Materials on the Premises, then not more than once every 6 two (2) years, Landlord shall have the right to require Tenant, at Tenant's sole cost and expense, to undertake and submit to Landlord a periodic environmental audit from an environmental company approved by Landlord, which audit shall cover Tenant's and Novellus' compliance with this paragraph 51. In addition, if Landlord has reason to believe that either Tenant or Novellus is not operating in compliance with the terms of this Paragraph 51, then Landlord may conduct additional environmental audits and the cost of such audit shall be at Tenant's expense unless Tenant and Novellus both are found to be in total compliance with the terms of this Paragraph 51. Also, an environmental audit may be conducted by Landlord, at Tenant's sole cost and expense, in connection with Tenant's surrender of the Premises at the expiration or earlier termination of this lease, if reasonably necessary to determine Tenant's and Novellus' compliance with the terms of this Paragraph 51. Tenant shall promptly comply with all requirements of any such audit and cure all matters raised therein at Tenant's sole cost. Tenant also agrees to comply with Landlord's reasonable request for additional information including questionnaires, necessary to assure Landlord of Tenant's compliance with the provisions of this paragraph 51." 4. RESTATEMENT OF THE LEASE TERMS. Except as specifically modified herein, all of the terms, covenants and conditions of the Lease shall remain in full force and effect. 7 IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the date first written above. LANDLORD: TENANT: CALIFORNIA SECOND, LTD., LTX CORPORATION, a Florida limited partnership a Massachusetts corporation By: McCandless Partnership, By: a California general partnership, --------------------------- and Mary McCandless Inter (Signature) Vivos Trust Agreement dated February 17, 1982, a General ------------------------------ Partner (Printed Name) ------------------------------ (Title) ------------------------------ (Date) NOVELLUS ACKNOWLEDGEMENT AND AGREEMENT: Novellus hereby acknowledges and agrees that the modifications to the Lease as provided in the foregoing Fourth Amendment to Lease were made primarily to accommodate the Sublease from Tenant to Novellus and as a condition to Landlord's agreement to enter into this Fourth Amendment to Lease, and to consent to the Sublease, Landlord required Novellus to acknowledge and agree to and be bound to Landlord to perform the provisions of paragraph 4 of this Fourth Amendment to lease, regarding environmental matters and the indemnity obligations specified therein, and by its signature below, Novellus accepts and agrees to all of such provisions. NOVELLUS SYSTEMS, INC. a California corporation By: --------------------------- (Signature) - ------------------------------ (Printed Name) - ------------------------------ (Title) - ------------------------------ (date) 8 EX-10.25 8 EXHIBIT 10.25 ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Agreement") is made as of November 22, 1995, by and among CIRCADIAN, INCORPORATED, a Delaware corporation, as Assignor ("Assignor"), NOVELLUS SYSTEMS, INC., a California corporation, as Assignee ("Assignee"), and CALIFORNIA SECOND, LTD., a Florida limited partnership, as Landlord ("Landlord"), who agree as follows: RECITALS This Agreement is made with reference to the following facts and with the following intentions: A. Landlord, as Landlord, and Assignor, as Tenant, entered into a written lease agreement dated as of June 9, 1987, as amended by that certain First Amendment to Lease dated as of December 1, 1987, that certain Second Amendment to Lease dated as of August 30, 1988, that certain Third Amendment to Lease dated as of April 3, 1989, that certain Fourth Amendment to Lease dated as of July 16, 1990, that certain Fifth Amendment to Lease dated as of August 15, 1991, and that certain Sixth Amendment to Lease dated as of January 3, 1994 (collectively, the "Lease"), whereby Landlord leased to Assignor and Assignor leased from Landlord certain real premises consisting of approximately 29,424 square feet of space located at 3942 North First Street situated in the McCandless Business Park, in the City of San Jose, County of Santa Clara, State of California (the "Premises"), more particularly described on EXHIBIT A attached hereto and incorporated herein by reference. B. Assignor desires to assign all of its right, title, and interest in the Lease to Assignee and Assignee desires to assume all of Assignor's rights and obligations under the Lease on and after the Effective Date (defined below). C. Landlord shall consent to the proposed Assignment on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. EFFECTIVE DATE OF ASSIGNMENT. The parties to this Agreement hereby acknowledge that this Assignment and Assumption of Lease (the "Assignment") is conditioned upon and subject to Assignor's finding a new suitable facility for its business to replace the Premises (the "Replacement Facility"). Subject to the foregoing condition, the Assignment shall take effect on the date by which both of the following shall have occurred: (i) Assignor has executed a lease for the Replacement Facility; and (ii) Assignor has actually delivered possession of the Premises to Assignee (the "Effective Date"). Assignor shall use reasonable efforts to notify Assignee verbally or in writing of Assignor's intended delivery of possession of the Premises to Assignee at least three (3) business days in advance of any such delivery. Assignor shall notify Assignee in writing of the Effective Date and Assignee shall acknowledge the Effective Date in writing, if requested by Assignor; provided, however, that any failure by Assignee to acknowledge such date shall in no way affect the Effective Date. Notwithstanding the foregoing, if the Effective Date does not occur on or before February 1, 1996, Assignee or Assignor may terminate this Agreement and this Agreement shall be null and void. In the event this Assignment is terminated pursuant to this Paragraph 1, Assignor shall return to Assignee any Assignment Consideration paid by Assignee to Assignor. 2. ASSIGNMENT OF LEASE. Assignor does hereby grant, transfer, assign and set over to Assignee, as of the Effective Date, all of Assignor's right, title and interest in and to the Lease and the Premises. 3. ACCEPTANCE AND ASSUMPTION OF LEASE. Assignee hereby accepts the foregoing Assignment of the Lease and Assignor's rights thereunder, and Assignee hereby assumes all of the rights and obligations of Assignor under the Lease which accrue or are to be performed on or after the Effective Date. Except as set forth in this Agreement, Assignee hereby expressly assumes and agrees to perform and fulfill all of the terms and obligations to be performed by the "Tenant" under the Lease on and after the Effective Date. 4. ASSIGNMENT CONSIDERATION. Upon the execution of this Agreement by all of the parties hereto, Assignee shall pay to Assignor the sum of Twenty Thousand Dollars ($20,000) as consideration for the Assignment described herein ("Assignment Consideration"). Notwithstanding anything in the Lease, Landlord hereby acknowledges that Landlord is not entitled to any portion of the foregoing Assignment Consideration and Landlord hereby expressly waives any right Landlord may otherwise have under the Lease to said Assignment Consideration. 5. MOVING EXPENSES AND PREPAID RENT. Upon the Effective Date, Assignee shall pay to Assignor as compensation for Assignor's moving expenses, the additional sum of (i) Twenty Thousand Dollars ($20,000) if the Effective Date occurs on or before December 15, 1995, or (ii) Ten Thousand Dollars ($10,000), if the Effective Date occurs after December 15, 1995 ("Moving Expense Amount"). Additionally, Assignee shall reimburse Assignor for any monthly rent, common area or any other charges under the Lease prepaid by Assignor for any full or partial month as of the Effective Date. Notwithstanding anything in the Lease, Landlord hereby acknowledges that Landlord is not entitled to any portion of the foregoing Moving Expense Amount or reimbursement and Landlord hereby expressly waives any right Landlord may otherwise have under the Lease to said Moving Expense Amount and reimbursement. 6. FACILITATION FEE. Upon the Effective Date, Assignee shall pay to Tarlton Properties, Inc. the sum of Fifteen Thousand Dollars ($15,000) as a facilitation fee for negotiating this Agreement. 7. SECURITY DEPOSIT. The parties acknowledge that Landlord now holds the sum of Seventeen Thousand Six Hundred Fifty Four Dollars and 40/100 ($17,654.40) as a security deposit (the "Security Deposit") under the Lease. Upon the Effective Date, Landlord shall pay to Assignor the entire amount of the Security Deposit, subject to prior receipt of the replacement security deposit from Assignee as specified in the following sentence. Concurrently upon the Effective Date, Assignee shall deposit with Landlord the sum of Seventeen Thousand Six Hundred Fifty Four Dollars and 40/100 ($17,654.40) as a security deposit to be applied in accordance with the provisions of the Lease. 8. LETTER OF CREDIT. Landlord hereby acknowledges that pursuant to Paragraph 5 of the Sixth Amendment to Lease between Landlord and Assignor dated as of January 3, 1994, Assignor deposited with Silicon Valley Bank a declining balance letter of credit ("Letter of Credit") in the original amount of One Hundred Thousand Dollars ($100,000) as security for Assignor's performance of its obligations under the Lease. Upon the Effective Date, Assignor shall so notify Landlord and Landlord shall immediately return the Letter of Credit to Assignor with a written statement, reasonably satisfactory to Assignor, acknowledging that all of Landlord's right and/or interest in, under or to the Letter of Credit is thereby terminated. 9. LANDLORD REPRESENTATIONS. Landlord represents and warrants, as of the date set forth above, that: (i) the Lease is in full force and effect; (ii) to the best of Landlord's knowledge, Assignor is not in default in the payment or performance of its obligations under the Lease; (iii) to the best of Landlord's knowledge, Assignor has not committed any breach of the Lease; (iv) no notice of default has been given to Assignor by Landlord; and (v) the documents attached hereto as Exhibit A constitute the only agreements between Landlord and Assignor with respect to the Premises. 10. RELEASE. Except for (i) any indemnity obligations that Landlord and Assignor have to each other under the Lease for demands, charges, claims, accounts, expenses (including attorneys' fees and costs), liabilities, damages or causes of action (collectively, "Claims") resulting from events occurring prior to the Effective Date that, pursuant to the terms of the Lease, would otherwise survive the expiration or sooner termination of the Lease, and (ii) any "Common Area Charges" or refunds that are due and payable by either Landlord or Assignor under the Lease as of the Effective Date based on the applicable end of the calendar year reconciliation of such charges, this Assignment shall fully and finally settle all Claims of any nature by and between Landlord and Assignor, including, without limitation, both known and unknown Claims that arise out of or relate in any manner to the Lease and/or the Premises. In connection with the foregoing release, the Landlord and Assignor expressly waive the provisions of California Civil Code Section 1542, which provide: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 11. INDEMNITY: Assignee shall indemnify, defend, protect and hold Assignor harmless from any Claims arising on or after the Effective Date in connection with the Lease, the Premises or as a consequence of Assignee's breach of the obligations on its part to be performed under this Agreement. Except as otherwise provided in paragraph 13 hereof, Assignor shall indemnify, defend, protect and hold Assignee harmless from any Claims in connection with the Lease or the Premises arising at any time during the Lease term prior to the Effective Date. The foregoing indemnities shall survive the expiration or termination of the Lease or this Assignment. 12. CONDITION OF THE PREMISES. Landlord agrees that any alterations or additions existing on the Premises as of the date of this Agreement may remain on the Premises and Landlord will accept surrender of the alterations and additions upon the expiration or sooner termination of the Lease. Landlord hereby releases Assignor from any liability Assignor may have in connection with the restoration of the Premises or other surrender obligation upon the expiration or sooner termination of the Lease. 13. ACCEPTANCE OF THE PREMISES. Upon the Effective Date, and except with respect to any hazardous materials which may be present on or about the Premises on the Effective Date, Assignee agrees to accept the Premises "AS IS". 14. SURRENDER OF THE PREMISES. Notwithstanding anything in the Lease, Assignee's obligations with respect to surrender of the Premises upon the expiration or sooner termination of the Lease shall be fulfilled if Assignee surrenders possession of the Premises to Landlord in the condition existing as of the Effective Date, ordinary wear and tear, acts of God, casualties and condemnation, excepted. 15. MISCELLANEOUS. A. ATTORNEY'S FEES. If any party to this Agreement commences an action or legal proceeding against any other party or parties to this Agreement arising out of or in connection with this Agreement or the Assignment described herein, the prevailing party or parties shall be entitled to recover from the losing party or parties reasonable attorneys' fees and costs of suit. B. SUCCESSORS. This Agreement shall be binding on and inure to the benefit of the parties and their respective successors and assigns. C. ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties with respect to the matters contained herein. D. SEVERABILITY. If any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16. BROKERS. Each party represents that it has not had dealings with any real estate broker, finder or other person, with respect to this Assignment except Tarlton Properties, Inc. Each party shall hold harmless the other party or parties from all damages resulting from any claims that may be asserted against the other party or parties by any broker, finder or other person with whom the other party or parties has, or purportedly has, dealt, other than Tarlton Properties, Inc. Assignee shall pay all commissions or other fees (including, without limitation, the aforementioned facilitation fee) owed to Tarlton Properties, Inc. arising from this Agreement and shall hold Assignor and Landlord harmless from any liability in connection therewith. 17. VOLUNTARY AGREEMENT. The parties have read this Agreement and the release contained in it, and on the advice of counsel, have fully understood and freely and voluntarily entered into this Agreement. 18. LANDLORD'S CONSENT. Landlord hereby consents to the Assignment and the terms and conditions of this Agreement, without waiver of the restriction concerning further assignment. IN WITNESS WHEREOF, the parties hereto have executed this Agreement intending it to be effective as of the Effective Date. ASSIGNOR ASSIGNEE CIRCADIAN, INCORPORATED, NOVELLUS SYSTEMS, INC. a Delaware corporation a California ----------------------- By: /s/ By: /s/ William J. Wall -------------------------- -------------------------------- Printed Printed Name: (?) Name: William J. Wall ------------------------ ------------------------------- Title: (?) CEO Title: CFO ----------------------- ------------------------------- Date: 11/22/95 Date: 11/22/95 ------------------------ ------------------------------ [signatures continued on next page] LANDLORD CALIFORNIA SECOND, LTD., a Florida limited partnership By: MCCANDLESS PARTNERSHIP, a California general partnership. a General Partner By: /s/ Birk S. McCandless -------------------------- Printed Name: Birk S. McCandless Title: As Trustee under the Birk S. McCandless and Mary McCandless Inter Vivos Trust Agreement dated February 17, 1982, a General Partner Date: 11/27/95 ------------------------- LEASE THIS LEASE is made June 9, 1987 between California Second, Ltd. ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation, ("Tenant"). W I T N E S S E T H : Landlord leases to Tenant and Tenant leases from Landlord those certain premises (the "Premises") outlined in red on Exhibit A, including those tenant improvements constructed by Landlord for Tenant as such is described in Exhibit C, which Landlord and Tenant hereby agree consist of approximately twenty-nine thousand, four hundred twenty-four (29,424) square feet in McCandless Business Park - San Jose (the "Project"). As used herein the term Project shall mean and include all of the land described and outlined in red on Exhibit B and all the buildings, improvements, fixtures and equipment now or hereafter situated on said land. Improvements for Tenant shall be constructed in accordance with the plans and specifications, and other terms and conditions, set forth in Exhibit C. Said work shall be at the expense of Landlord and/or Tenant as set forth in Exhibit C and shall in each case be performed in a prompt, diligent and workmanlike manner. Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance. 1. USE Tenant shall use the Premises for office, research and development, and light manufacturing, and other related uses, and shall not use or permit the Premises to be used for any other purpose. 2. TERM (a) The term, subject to paragraphs 2(b) and 3, shall commence on December 1, 1987 and end on September 27, 1989 unless sooner termination as hereinafter provided. In no circumstances shall the term commence prior to December 1, 1987. (b) Possession of the Premises shall not be deemed tendered and the term shall not commence until the first to occur of the following: (1) Upon substantial completion of all work to be done by Landlord pursuant to Exhibit C (exclusive of telephones or other communication systems and punchlist items) and the receipt of a Certificate of Occupancy from the proper governmental agency (or the -1- receipt of a final building permit acknowledging completion and permitting occupancy of the Premises from the City of San Jose); if no such certificate or permit is required then certification by Landlord's architect or contractor that the Landlord's construction work has been completed; or (2) Upon the occupancy of the Premises by an (?) Tenant's operating personnel, provided however that Tenant, at its sole risk and expense, may, subject to Landlord's reasonable consent, and without causing commencement of the term, install prior to commencement telephone, computer terminal wiring, and equipment and items for storage to the extent permitted by applicable laws provided same does not interfere with Landlord's construction work. It is agreed that Landlord shall in no manner or event (excepting the negligence or willful misconduct of Landlord or its employees or agents) be liable or responsible for damage to, or caused by, Tenant's equipment prior to commencement. Tenant shall not use non-union personnel for such installation prior to commencement without Landlord's prior written approval; or (3) If Landlord is prevented from or delayed from (?) completing its work under Exhibit C due to the acts or omissions of Tenant, then upon the date by which such work would have been completed (?) but for such acts or omissions by Tenant. 3. POSSESSION If Landlord for any reason cannot deliver possession of the Premises to Tenant at the date of commencement set forth in paragraph 2(a), this lease shall not be void or voidable and Landlord shall not be liable to Tenant for any loss or damage on account thereof. Except as set forth in Exhibit C, Tenant shall not be liable for rent until Landlord delivers possession of the Premises to Tenant, as defined in paragraph (?). If the term commences on a date other than specified in 2(a) above, the parties shall immediately execute an amendment to this lease stating the actual date of commencement. Notwithstanding the above, the period of delay shall not exceed ninety (90) days from December 1, 1987 plus (?) number of days of delay caused by Tenant or by strike or other causes beyond Landlord's reasonable control. If the period of delay exceeds the allowable delay, Landlord shall not be liable to Tenant for any loss or damage on account thereof, but Tenant may, at its option, declare this lease void, and, if Tenant so elects, all amounts deposited with Landlord shall be returned to Tenant. If the delay exceeds ninety (90) days and Tenant does not elect to terminate, and if none of such ninety (90) days of delay has been caused by Tenant, then Tenant shall receive one (1) additional day free monthly rent for every day of delay not caused by Tenant, or by strike, or other causes beyond Landlord's reasonable control, beyond the 90 day period set forth above. 4. MONTHLY RENT (a) MONTHLY RENT. Tenant shall pay to Landlord as rent for the premises, in advance and subject to adjustment as provided in paragraph 5, the sum of nineteen thousand two hundred seventy-two and 72/100 Dollars ($19,272.72) on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar -2- month. Rent for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly rent per day. (b) PLACE OF PAYMENT. All rent and other amounts (?) Landlord hereunder shall be paid to Landlord, without deduction or offset (?) in lawful money of the United States of America, at the office of Landlord at 3945 Freedom Circle, Suite 1000, Santa Clara, CA 95054, or to such other person or place as Landlord may from time to time designate in writing. (c) FIRST MONTH'S RENT. Landlord acknowledges receipt from Tenant, on the execution hereof, of the sum nineteen thousand two hundred seventy-two and 72/100 ($19,272.72) to be applied against the rent for the first full month of the term for which rent is due. (d) SECURITY DEPOSIT. Concurrently with Tenant's execution of this lease, Tenant shall deliver to Landlord an unconditional and irrevocable Letter of Credit in the amount of nineteen thousand two hundred seventy-two and 72/100 dollars ($19,272.72) to secure the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. The Letter of Credit shall be available by draft at sight, subject only to receipt by the bank of a notarized statement from Birk S. McCandless or Steven E. Sund stating that the amount demanded is due and owing to Landlord by reason of the default of Tenant. The Letter of Credit shall by its terms expire not less than one year from the date issued, provided that said Letter of Credit shall be renewed by Tenant for successive periods of not less than one year each to and including not less than ten (10) days after the termination of this lease. The bank's written renewal of the Letter of Credit shall in each case be delivered to Landlord not less than ninety (90) days prior to the expiration date of the then outstanding Letter of Credit. Tenant's failure to so deliver, renew (including specifically but not limited to the delivery to Landlord of such renewal not less than ninety (90) days prior to expiration of the Letter of Credit) and maintain such Letter of Credit shall be a material breach of this lease*. If Tenant fails to comply with any provision of this lease, including without limitation the payment of rent and other amounts due Landlord after ten (10) days' written notice to Tenant, Landlord may immediately and without further notice resort to said Letter of Credit and use or apply all or any part of same to compensate Landlord for any loss and expense occasioned thereby and for the payment of any amount due Landlord under the terms of this lease, or if Tenant's default consists of the failure to renew said Letter of Credit, then to deposit the full amount thereof (less any amount required otherwise to compensate Landlord for its loss and expense) as a cash security deposit to be held by Landlord as if Tenant had deposited the same as provided below. If any portion of said Letter of Credit is used as specified above, Tenant shall, within ten (10) days after written demand therefor, restore the Letter of Credit to its original amount, except that if Tenant is reasonably and in good faith contesting in a court of law *, excepting only that Tenant's failure to so renew the Letter of Credit shall constitute a breach thereof only if it fails to so renew the Letter of Credit after not less than ten (10) days written notice thereof from Landlord. -3- Landlord's resort to the Letter of Credit, then Tenant shall not be obligated to restore the Letter of Credit while such action is pending. Tenant's failure to restore the Letter of Credit as required herein shall be a material breach of this lease. Landlord's resort to said Letter of Credit shall in no way or manner constitute an acceptance of or waiver of such failure by Tenant to comply with this lease; nor shall resort to said Letter of Credit terminate, or permit Tenant to terminate, or constitute a forfeiture of or be construed as an election by Landlord to terminate, this lease; nor shall such resort affect Landlord's remedies otherwise available under this lease or at law. Tenant may at any time during the term, deposit with Landlord a cash deposit of nineteen thousand two hundred seventy-two and 72/100 ($19,272.72) as a security deposit in lieu of the aforementioned Letter of Credit, in which event said Letter of Credit shall be promptly returned to Tenant. If Tenant thereafter defaults with respect to any provision of this Lease including but not limited to the provisions relating to the payment of rent and other amounts due Landlord, Landlord may (but shall not be required to) use, apply or retain all or any part of such security deposit for the payment of any amount which Landlord may spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said deposit is so used, Tenant shall within ten (10) days after written demand therefor, deposit in cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. At the termination of this Lease, the security deposit or the unused balance thereof shall be returned to Tenant after Tenant vacates the Premises. 5. ADJUSTMENT OF MONTHLY RENT The monthly rent provided for in paragraph 4(a) shall not be adjusted. If this lease commences on any date other than the first day of a month, then Landlord shall promptly prepare a statement within a reasonable time following lease commencement which prorates the initial rent due as set forth in paragraph 4 (a) and states the actual adjustment and termination dates of the lease. -4- 6. RESTRICTION ON USE Tenant shall not do or permit to be done in or about the Premises or the Project, nor bring or keep or permit to be brought or (?) in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of (or otherwise affect) (?) or any other insurance covering the Project or any part thereof or any of its contents therein (unless in any such case, Tenant agrees in advance to pay any such increase), or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or Project which will constitute waste or which will unreasonably obstruct or interfere with the rights of other tenants or occupants of the Project or injure or unreasonably annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for sleeping, washing clothes, cooking (except in the lunch room) or the preparation, manufacture or mixing of anything that might emit any unreasonable and objectionable odor, noises or lights into the adjoining premises or common areas, or Project. Tenant shall not do anything on the Premises that will cause damage to the Project or the building in which the Premises are located and the Premises shall not be overloaded. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will so injure, vibrate or shake the Premises so as to damage the building. Landlord shall be the reasonable judge of whether such odors, noises, lights or vibrations are such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the building proper except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or inside of the building proper where designated; and no toxic or hazardous materials shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, -5- finished products or semifinished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. Only occasional retail sales shall be made on the Premises. 7. COMPLIANCE WITH LAWS Tenant shall, in connection with its use and occupation of the Premises, at its sole cost and expense, promptly observe and (?) with (i) all laws, statutes, ordinances and governmental rules, regulations or requirements now or hereafter in effect, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification, commences to remedy or rectify said failure. (See also paragraph 50). The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord (?) a party thereto or not, that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. Notwithstanding the above and except as otherwise specifically provided in Exhibit C, Landlord shall, at its sole cost and expense, make any additions or changes to the Premises as may be required to bring the Premises into compliance with laws, statutes, ordinances and governmental rules, regulations or requirements in effect at the commencement date of this lease. 8. ALTERATIONS Tenant shall not make or suffer to be made any alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as "alterations") without (1) the prior written consent of Landlord, which consent shall not be unreasonably withheld and shall not be delayed by more than two (2) weeks (and if Landlord has not responded within two weeks then Landlord shall be deemed to have consented thereto), and (ii) a valid building permit issued by the appropriate governmental authority; provided, however, that if such permit is not required, then it shall be sufficient that the alteration, addition (?) improvement be in compliance with applicable governmental regulations. Notwithstanding the foregoing, Tenant may make alterations costing five thousand and no/100 ($5,000) or less without the prior written consent of Landlord but shall, in such event, promptly inform Landlord of the nature of the alteration, the cost thereof and the contractor engaged or prepared to be engaged to perform such work, and all such work shall be done pursuant to a valid building permit (or, if no such permit is required then in accordance with applicable governmental regulations). -6- Any alteration made by Tenant (excluding moveable furniture and trade fixtures not attached to the Premises) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery and carpet installations made by Tenant regardless of how attached to the Premises, together with all other alterations that have become an integral part of the building in which the Premises are a part, shall be and become part of the Premises and belong to Landlord upon installation and shall not be deemed trade fixtures, (except as specifically permitted by this paragraph 8) shall remain upon and be surrendered with the Premises at the termination of the lease. At any time during the lease term, Tenant may, at its sole cost and expense and on not less than thirty (30) days' prior notice to Landlord, remove and keep any alteration originally made by Tenant at its cost and expense, provided that Tenant shall repair any damage to the Premises caused by such removal and restore the affected area to the condition existing prior to such alteration; provided that notwithstanding the foregoing, Tenant may not remove such alteration, to the extent they constitute Standard Tenant Improvements, within the last twelve (12) months of the lease term. Upon the expiration or sooner termination of the term, Landlord may, at its sole option, require Tenant, at Tenant's sole cost and expense, to promptly both remove any alteration made by Tenant during the term and Tenant shall repair any damage to the Premises caused by such removal. Nothing herein shall restrict Tenant's right to remove its moveable furniture or trade fixtures, providing that any movable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of Landlord unless promptly removed by Tenant. Any alteration (including the removal of past alterations) by Tenant shall be made by Tenant at its sole risk, cost and expense. Alterations requiring Landlord's consent (and the removal of past alterations where such work costs in excess of $5,000) shall be made only after Landlord's written approval of any contractor or person selected by Tenant for that purpose, which approval shall not unreasonably be withheld. If during the term any alteration, addition or change (?) the Premises is required by law, regulation, ordinance or order of any public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alteration or change to the Common Area (or to the Project or building in which the Premises is located and it being, in Landlord's judgment, impractical for the affected tenants to individually make such alterations, additions or changes) is required by law, regulation, ordinance or order of any public or quasi-public authority the cost of such alteration or change shall be a Common Area Change and Tenant shall pay its percentage share of said costs to Landlord as provided in paragraph 16. (See also paragraph 50). -7- 9. REPAIR AND MAINTENANCE By entry hereunder Tenant accepts the Premises as being in good and sanitary order, condition and repair (excepting only "punchlist items" provided however that such acceptance shall not be deemed a waiver with respect to structural defects, non-compliance with applicable laws or other items not reasonably ascertainable on walk through inspection). Except as expressly provided below, Tenant shall at its cost keep and maintain the entire Premises and every part thereof including, without limitations, the windows, window frames, plate glass, glazing, truck doors, doors and all door hardware, the interior walls and partitions, lighting and the electrical and plumbing systems. Tenant shall also repair and maintain the heating and air conditioning systems (unless Landlord has elected to keep and maintain the heating and air conditioning systems as provided below) which shall include, without limitation, a periodic maintenance agreement with a reputable and licensed heating and air conditioning service company. If Tenant's use of the heating and air conditioning systems is limited to normal business hours (8 a.m. to 6 p.m.), such agreement shall provide for service at least as often as every 60 days; if Tenant's use of the heating or air conditioning systems extends beyond such normal business hours, this service shall be as often as may be required by Landlord; and in any event such service shall meet all warranty enforcement requirements of such equipment and comply with all manufacturer recommended maintenance. Landlord may elect, at its option, to keep and maintain the heating and air conditioning systems of the Premises and in such event, Tenant shall pay to Landlord upon demand the full cost of such maintenance and of repairs to such systems. In no case shall Tenant be obligated for repairs and maintenance for (i) structural elements of the building (ii) defects in construction work of Landlord, (iii) repairs or maintenance arising from defaults of Landlord under this Lease, (iv) items which Landlord is obligated to restore pursuant to paragraph 17. Subject to the provisions of paragraph 17, Landlord shall keep and maintain at its cost and expense the roof, structural elements, exterior walls of the buildings constituting the Project and Common Area in good order and repair. Landlord agrees to repair or correct, at its cost and expense, all defects in design, materials and workmanship in the Premises and Project which materially affect Tenant's use or occupancy thereof, provided such obligation of Landlord shall not extend to design criteria and/or specifications for computer rooms or other special improvement areas specifically provided by Tenant. If any repairs or maintenance is required because of an act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full costs of such repairs of maintenance. 10. LIENS Tenant shall keep the Premises and the Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. In the event that Tenant shall not, within ten (10) days following notice of the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition -8- to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien, sums paid by Landlord for such purpose, and all expenses incurred by (?) connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other parties having an interest therein, from mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at least fifteen (15) days' prior notice of the date of commencement of any construction on the Premises in order to permit the posting of such notices. Notwithstanding anything to the contrary contained in this paragraph 10, Tenant shall have the right to contest the correctness or validity of any lien referenced in this paragraph 10 if, promptly after written demand by Landlord, Tenant procures and records a lien release (?) bond issued by a corporation authorized to issue surety bonds in California, or delivers to Landlord a Letter of Credit or other suitable security in form reasonably satisfactory to Landlord, in an amount equal to the amount of the claim of lien. 11. INSURANCE Tenant, at its sole cost and expense, shall keep in force during the term (i) public liability insurance with limits of at least $2,000,000 per occurrence for injuries to or death of persons occurring in, on or about the Premises or the Project and property damage insurance with limits of at least $2,000,000 per occurrence and (ii) Worker's Compensation insurance as required by the State of California. All such policies shall be primary and shall provide that said insurance shall not be cancelled or reduced except upon at least thirty (30) days' prior written notice to Landlord. Further, Tenant's public liability insurance shall name Landlord or Additional Insured using ISO Bureau For G109 or G112001 (or a successor form); shall contain cross-liability endorsements; and shall be issued by an insurance company admitted to transact business in the State of California. Landlord agrees to pay on demand up to $25.00 for the Additional Insured Endorsement. Tenant shall, prior to the commencement of the term, provide Landlord with a completed Certificate of Insurance using Acord Form 25, a blank copy of which is attached to this lease. Tenant agrees to increase the coverages or otherwise comply with changes in connection with said public liability, property damage and Worker's Compensation Insurance as Landlord or Landlord's lender may from time to time require. Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, with increased cost of reconstruction and contingent liability (including -9- demolition) and flood and/or earthquake insurance if available, plus a policy of rental income insurance in the amount of 100% of twelve (12) months' rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord's lender may from time to time require. The cost of all such insurance purchased by Landlord, plus any charges deferred payment of premiums and any deductible paid by Landlord, shall (?) Common Area Charges and Tenant shall pay its percentage share of such costs as provided in paragraph 16 (provided that if the loss is not due to an act or omission of Tenant or its agents, employees or invitees, any such deductible paid by Landlord shall be amortized and included in Common Area Charges at the rate of 1/120th thereof per month through the remaining term of this lease, and in such event there shall also be included Common Area Charges interest at the rate of twelve (12%) on the balance of such deductible remaining from time to time). If insurance costs are increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord upon demand the full cost of such increase not less than ten (10) days before Landlord is obligated to pay such increased premium (but not less than ten (10) days after Landlord delivers to Tenant a statement from landlord's insurance carrier stating the amount of the increase and the reason therefor). Notwithstanding the foregoing, Tenant shall be obligated to pay any portion of premiums for earthquake insurance if Landlord sells the Project or Premises unless earthquake insurance is the (?) customary for buildings in the same general location in the County of Santa Clara and of substantially similar type, construction and use, or such insurance is required by purchaser's lender. If insurance costs are increased due to Tenant's use of the Premises, then Tenant shall pay to Landlord upon demand the full cost of such increase. Tenant shall be named as an additional insured in Landlord's insurance policy. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises, the Project, or any part thereof, or any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties and each party shall cause each such insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either party in connection with any loss or damage covered by such policy. If additional premiums must be paid, Tenant shall pay such additional premiums necessary to obtain such waver. A copy of the Waiver of Subrogation in favor of Landlord shall be attached to the Tenant's completed Acord Form 25. Tenant shall be named as an additional insured on Landlord's policy and Tenant's rights are subject to a mortgage loss payee clause that Landlord's lender may require. Notwithstanding anything hereinabove contained, Tenant shall be responsible for carrying, and shall pay the cost of, any casual insurance as Tenant deems appropriate with respect to any Tenant's personal property and fixtures and any tenant improvements not the property of Landlord. -10- 12. UTILITIES AND SERVICES Tenant shall pay for all water, gas, light, heat, (?), electricity, telephone, trash pickup, sewer charges and all other services supplied to or consumed on the Premises. In the event that any service is not separately metered to the Premises, the cost of such utility services shall be a Common Area Charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. In addition, the cost of any utility service supplied to the Common Area shall be a Common Area Charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. If Tenant's use of any such utility service is materially in excess of the average furnished to the other tenants of the Project and such utility service is not separately metered, then Tenant shall pay to Landlord upon demand the full cost of such excess, or Landlord may cause such utility service to be separately metered, in which case Tenant shall pay the full cost of installing the separate meter. Landlord shall not be liable for, and Tenant shall not be entitled to, any abatement or reduction of rent by reason of the failure by any person or entity to furnish any of the foregoing utility services when such failure is caused by any cause beyond the reasonable control of Landlord. 13. TAXES AND OTHER CHARGES All real estate taxes and assessments and other taxes, fees and charges of every kind or nature levied or assessed against the Project or any part thereof during the term by any federal, state, county, regional, municipal or other governmental or quasi-public authority shall be a Common Area Charge and payable by Tenant as set forth in paragraph 16. To the extent that any taxes set forth in this paragraph 13 for which Tenant is responsible decrease, Tenant's proportionate share of such taxes shall be reduced accordingly by means of reducing Tenant's share of the Common Area charge. By way of illustration and not limitation, "other taxes, fees and charges" as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, premium taxes or Landlord's franchise, estate, inheritance, successions, or gift taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use of occupancy by Tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant's personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to parking or the number of persons employed in or about the Project, and (vi) any tax, license, franchise free or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any -11- portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord thereby shall also be a Common Area Charge and payable by Tenant as set forth in paragraph 16. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher or lower than those (?) of other tenants in the building or Project or in the event alterations (?) improvements are made to the Premises, Tenant's percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward or downward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor's work sheet or such other information was may (?) reasonably available and Landlord's determination thereof shall be conclusive. Tenant at its cost shall have the right at any time to seek a reduction in the assessed valuation of the Premises or the Project or to contest any real property taxes, assessments, fees or other taxes and charges that are to be paid by Tenant; provided, however, that any such contest or proceeding shall be at Tenant's sole cost and expense and provided further that Tenant shall hold Landlord and the Premises and the Project harmless therefrom. Landlord shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of Landlord or any owner of the Premises. In that case Landlord shall cooperate and join in the proceeding or contest or permit it to be brought in Landlord's name as long as Landlord is not required to bear any cost. If Tenant seeks to reduce or contest any such tax, assessment, fee or other charge and if requested by Tenant, Landlord agrees to pay such tax assessment, fee or charge under protest and to otherwise deal with the appropriate authority in a manner consistent with Tenant's contest or proceeding and the applicable rules, regulations or procedures of such authority. In the event Tenant obtains any refund attributable to the Premises, such refund shall belong to Tenant. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. All taxes or other charges due under this paragraph 13 shall be prorated to reflect the portion of any such tax or charge attributable to the period between the commencement and termination dates of the lease. 14. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times have, the right to enter the Premises, (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers or lenders and put 'for sale' signs thereon, (iv) during the last six months of the term, or during any period when Tenant is in default, to show the Premises to prospective tenants and to put 'for lease' signs thereon, (v) to post notices required or allowed by this lease or by law, (vi) to alter, improve or repair the Premises and -12- any portion of the Project, and (vii) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Except to the extent Landlord is negligent, or engages in willful misconduct, the exercise of its right of entry hereunder, Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord's entry and acts pursuant to this (?) paragraph and Tenant shall not be entitled to an abatement or reduction in rent if Landlord exercises any rights reserved in this paragraph. For (?) each of the foregoing purposes, Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into (?) a detainer of the Premises or an eviction, actual or constructive, of (?) Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time to change the name (provided that such name is not the name of one of Tenant's major competitors) or designation by which (?) Project is commonly known. Notwithstanding anything to the contrary contained in this paragraph 14, Landlord may not enter the Premises, except in the case of an emergency, unless (i) Landlord has given Tenant at least twenty-four (24) hours' prior notice of its intent to enter and (ii) such inspection is subject to the reasonable security requirements of Tenant, and (iii) such entry by Landlord shall not materially and unreasonably interfere with Tenant's use of the Premises. Landlord shall not materially block or obstruct Tenant's front entrance, nor erect scaffolding within the Premises unless reasonably required in order for Landlord to fulfill its obligations under this lease. 15. COMMON AREA Subject to the terms and conditions of this lease and such rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Project in which the Premises are located, (?) and their respective employees, invitees and customers and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Project, which areas and facilities are referred to herein as "Common Area". This right shall terminate upon the termination of this lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area provided that such changes do not unreasonably interfere with the conduct of Tenant's business. Landlord further reserves the right to promulgate such rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regu- -13- lations may be amended by Landlord from time to time, with or without advance notice, but shall not unreasonably and materially diminish Tenant's use of the Premises or the Common Area. Tenant shall be assigned the use of no less than one hundred seventeen (117) parking spaces in the Common Area as designated from time to time by Landlord. Landlord agrees to label at its expense (?) to ten (10) visitors stalls; and Landlord, at the request and expense of Tenant agrees to label the remaining (107) parking spaces. It is agreed that Landlord is not responsible for policing any of such parking spaces. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole, but reasonable, discretion of Landlord. The cost of such maintenance, operation and management, including but not limited to landscaping, repair of paving, parking lots and sidewalks, security services and salaries and employee benefits (including union benefits) of on-site and accounting personnel engaged in such maintenance and operations management (but excluding payments on loans or ground leases, brokerage commission and costs directly related to leasing the Project, damages caused by other tenants or their employees or agents, the cost of repair or correction of construction defects, and management fees in excess of the five percent (5%) referred to in paragraph 16 below) shall be a Common Area Charge and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16. 16. COMMON AREA CHARGES Tenant shall pay to Landlord, as additional rent, an amount equal to 28.7% (29,424 [divided by] 102,528 square feet) of the total Common Area Charges as defined in this lease. Tenant further agrees that Common Area Charges shall include an additional 5% of the actual expenditures for the aggregate of all other Common Area Charges in order to compensate Landlord for accounting and processing services. Tenant's percentage share of Common Area Charges shall be paid as follows: At or prior to the commencement of the term and to the commencement of each calendar year of the term, Landlord shall deliver to Tenant a written estimate of total Common Area Charges during the balance of the calendar year in which the term commences and each succeeding calendar year, respectively. Tenant shall pay, as additional rent, on the first day of each month during the calendar year (or portion thereof) covered by such estimate, its percentage months share of Common Area Charges as shown on such estimate. Within thirty (30) days of the end of -14- each calendar year and of the end of the term, Landlord shall deliver to Tenant a statement of actual Common Area Charges incurred for the preceding year, or, in the case of a statement after the end of the term, covering the year in which the lease terminates. If such statement shows that Tenant has paid less than its actual percentage then Tenant shall on demand pay to Landlord the amount of such deficiency. If such statement shows that Tenant has paid more than its percentage share then Landlord shall, at its option, promptly refund such excess to Tenant or credit the amount thereof to the rent next becoming due from Tenant. Landlord reserves the right to revise any estimate of Common Area Charges if actual or projected Common Area Charges show an increase or decrease in excess of 10% from any earlier estimate for the same period. In such event, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefor, and Tenant shall revise its payments accordingly. Landlord's and Tenant's obligations with respect to adjustments at the end of the term of this lease shall survive such termination. Landlord shall allow Tenant reasonable access to Landlord's books and records respecting Common Area Charges. Tenant shall be entitled to cause a certified public accountant to perform an audit of the statement of actual Common Area Charges for the preceding year, and in the event such audit shall establish that the amount shown on such statement overstates by more than two percent (2%) the amount Tenant is liable for then Landlord shall promptly reimburse to Tenant any sums overpaid by Tenant, together with interest on the overpaid amounts at the rate of ten percent (10%) per annum and the cost of such audit. In the event such audit shall not establish such overstatement, Tenant shall pay the entire cost of such audit. 17. DAMAGE BY FIRE; CASUALTY In the event the Premises are damaged by any casualty which is covered under an insurance policy required to be maintained pursuant to paragraph 11, or in the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11 and the cost of restoration is less than fifty thousand dollars ($50,000.00), Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage and restore the Premises to substantially the condition existing prior to such damage, and this lease shall continue in full force and effect provided however in the event the Premises cannot be reasonably and lawfully restored within nine (9) months of the date of such damage, either party may terminate this Lease effective upon written notice of termination given to the other party within thirty (30) days of the date of such damage. Tenant shall on demand pay to Landlord the amount equal to the deductible under any such insurance, except as provided in paragraph 11. In the event the Premises are damaged by any casualty not covered under an insurance policy required to be maintained pursuant to paragraph 11 and the cost of restoration is fifty thousand dollars ($50,000.00) or more, Landlord may, at Landlord's option, either (i) repair such damage, at Landlord's expense, as soon as reasonably possible in which event this lease shall continue in full force and effect, or (ii) -15- give written notice to Tenant within thirty (30) days after the date of the occurrence of such damages of Landlord's intention to cancel and terminate this lease as of the date of the occurrence of the damages; provided, however, that if such damage is caused by an act or omission to act of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event the lease shall continue to full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be cancelled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage by fire or other cause, or to make any restoration or replacement of, any of Tenant's personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises. If the Premises are totally destroyed during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within nine (9) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction is sufficient to pay the cost of such repair or restoration, then the said insurance proceeds shall be so applied, Landlord shall promptly repair and restore the Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, Landlord may at Landlord's option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the occurrence of such damage. If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated in proportion to the square footage rendered unusable to Tenant or Tenant's business operations by reason of such damage or destruction. 18. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project by or from any cause whatsoever except the negligence or wilful misconduct of Landlord or its authorized representatives. Except as to injury to persons or damage to property the principal cause of which is the negligence or wilful misconduct of Landlord or its authorized representatives, Tenant shall hold Landlord harmless from and defend Landlord -16- against any liability, loss, damage or expense, including attorney fees arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever. Tenant shall hold Landlord harmless from and defend Landlord against any liability, loss, damage, or expense, including attorney fees, arising (i) out of the failure of Tenant to observe or comply with laws or other requirements as set forth in paragraph 7, or (ii) by reason of any labor or service performed for, or materials used or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises. The provision of this paragraph shall survive the expiration of earlier termination of this lease. In no event shall Tenant's obligations to hold Landlord harmless and indemnify Landlord include (i) liability, loss, damage or expense arising from defects in Landlord's construction work or from defaults by Landlord under this Lease and, (ii) liability, loss, damage or expense arising from the acts or omissions of other tenants in the property. 19. ASSIGNMENT AND SUBLETTING Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent, which consent shall not be unreasonably withheld. Any assignment, encumbrance or sublease without Landlord's election, shall constitute a default. If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than fifteen (15) days or more than one hundred twenty (120) days after the date of such notice), the portions of the Premises proposed to be sublet or assigned and the identity of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as reasonably requested by Landlord. Except as set forth below, Landlord shall inform Tenant of Landlord's consent, or lack of consent, to the proposed sublet or assignment within ten (10) days from the date of receipt by Landlord of the notice from Tenant and Landlord's failure to respond within such time shall be deemed to be a consent to such sublet or assignment, provided that if Landlord has not received such other information concerning the proposed assignee or subtenant then such period shall be extended to three (3) days after the receipt of such information. In the case of any proposed assignment, or in the case of a proposed sublet of all of the Premises at a time when Tenant has not occupied the Premises or if the proposed sublet is for the entire Premises fora sublet term ending within the last twelve (12) months of the term of this lease, Landlord shall have the right, exercisable by written notice to be delivered to Tenant within thirty (30) days of receipt of Tenant's notice to terminate this lease effective as of the date specified in Tenant's notice as the proposed commencement date of the assignment or sublease. If Landlord does not elect to terminate this lease and if Landlord consents in writing to the proposed assignment of sublet, Tenant shall be -17- free to assign or sublet all or a portion of the Premises subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid (?) no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet without Landlord's consent, which consent shall not be unreasonably withheld; (iv) except as to a sublet for a portion of the Premises during the first eighteen (18) months of the term, one-half of any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rent or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such assignees or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be payable to Landlord as additional rent under this lease without affecting or reducing any other obligation of Tenant hereunder; and (v) no sublet or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor provided that Landlord gives Tenant notice of such default and five (5) days to cure same. Landlord may consent to subsequent assignments or sublets or this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease. Notwithstanding the above provisions of this paragraph 19, Tenant may, without obtaining the consent of Landlord and without Landlord having the right to terminate this lease as set forth above, assign or sublease the whole or any part of the Premises to any corporation or other entity which acquires or is acquired by Circadian or which results from a merger or consolidation with Circadian or which either controls or is controlled by Circadian or which is controlled by any of the foregoing, provided that (i) Tenant shall continue to be fully obligated for the timely performance of all the terms, covenants, agreements and conditions of this lease and (ii) such assignee or subtenant agrees in writing to be subject to and governed by all of the terms, covenants, agreements and conditions of this lease and such agreement by assignee or subtenant is promptly given to Tenant. Tenant shall give Landlord written notice of any such assignment or sublease as provided above in this paragraph 19, and any such assignment or subletting shall be subject to the conditions for other assignments and sublettings set forth above. -18- No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes (or has instituted against it) a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall (?) be treated as an asset of Tenant. Notwithstanding the foregoing, if a writ of attachment or execution is levied on this lease then Tenant shall have seven (7) days in which to remove same, and if an involuntary proceeding in bankruptcy is brought against Tenant then Tenant shall have thirty (30) days to have such proceedings dismissed. Tenant immediately and irrevocably assigns to Landlord as security for Tenant's obligations under this lease, all rent from any subletting of all or a part of the Premises as permitted by this lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord's application, any collect such rent and apply it toward Tenant's obligations under this lease; except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 19. 20. DEFAULT The occurrence of any of the following shall constitute a default by Tenant: (i) failure to pay any rent or other sum payable hereunder within ten (10) days of written notice from Landlord of failure to make such payment when due; (ii) abandonment of the Premises; or (iii) failure to perform any other term, covenant or condition of this lease (?) the failure to perform is not cured within thirty (30) days after written notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be (?) default within the thirty (30) days period and diligently and in good faith continues to cure the default). The notice referred to in (iii) above shall specify the alleged default and the applicable lease provisions and shall demand that Tenant perform the provisions of this lease within the applicable period of time and no such notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies at law or in equity, shall have the right either to terminate Tenant's right to possession of the Premises -19- and thereby terminate this lease or, from time to time and without terminate on this lease relet the Premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord's rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and shall be applied (i) to the payment of any indebtedness due hereunder, other than monthly rent, from Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant's property left on the Premises at the time of reletting; and (iii) to the payment of monthly rent due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease, shall be paid by Tenant. Should the monthly rent and Common Area Charges received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as election on its part to terminate this lease unless a notice of such intention is given to tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Should Landlord at any time terminate this lease for any breach, in addition to any other remedy it may have it shall have the immediate right of entry and may remove all persons and property from the Premises and, in addition to all its other rights and remedies, shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) all amounts that would have fallen due as rent between the time of termination of this lease and the time of the judgment or other award plus interest on the balance at the rate of twelve percent (12%) per year, but less the avails of relettings and attornments; (ii) the worth at the time of the judgment or other award of the amount by which the unpaid rent for the balance of the term exceeds the amount of such rental loss that Tenant provides could be reasonably avoided; (iii) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this lease or which in the ordinary course of things would be likely to result therefrom. "Worth" as used in this provision is computed by discounting the total at the discount rate of the Federal Reserve Bank of San Francisco at the time of the judgment or award plus one percent (1%). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at -20- the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all there of at a public or private sale in such manner and at such times and places at Landlord in its sole discretion may deem proper, without notice to or demand upon Tenant. Any proof by Tenant under subparagraphs (2) and (3) or section 1951.2(a) of the California Civil Code of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property at the same type and use as the Premises in the same geographical vicinity. Such two real estate brokers shall select a third licensed real estate broker, and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the terms after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. 21. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT Landlord, at any time after Tenant commits a default, can cure the default at Tenant's cost. If Landlord at any time, by reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid, and if paid at a later date shall bear interest at the rate of eighteen percent (18%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. This sum, together with interest on it, shall be additional rent. 22. EMINENT DOMAIN If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor, and Landlord shall be entitled to any and all payments, income rent or award (or any interest therein) which may be paid or made in connection with such taking or conveyance. Tenant shall have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to, (i) the value of relocation expenses of Tenant necessitated by such taking, and (ii) any compensation for deprecation to and loss or removal of equipment and fixtures, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises). If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having -21- the right of power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by an entity or body having the right (?) power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice or the commencement of said action or proceeding. Such termination shall take place on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and twenty-five percent (25%) or more of the number of square feet in the Premises are taken, or of the Common Area and the Premises thereby fails to meet applicable governmental rules and regulations concerning the minimum number of parking spaces for similar zoned premises in the City of San Jose or if twenty percent (20%) or more of Tenant's parking spaces are taken, then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on receipt of such written notice by Landlord. If a portion of the Premises be taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this lease then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rental shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking. 23. COVENANT TO SURRENDER On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of Tenant's improvements and alterations in their condition existing as of the commencement of the term (reasonable wear and tear excepted), with all originally painted interior walls washed if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, the air conditioning and heating system serviced and repaired by a reputable and licensed service firm (unless Landlord has elected to maintain such system pursuant to paragraph 9 above) and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord. Tenant shall remove all of Tenant's personal property and trade fixtures, together with improvements or alterations that Tenant is obligated or has the option to remove pursuant to the provisions of paragraph 8, from the Premises, and all such property not removed shall be deemed abandoned. At Tenant's request, Landlord shall inspect the Premises on the last day of the term and if Tenant has performed its obligation under this paragraph 23, Landlord agrees to acknowledge same in writing. -22- If the premises are not surrendered as required in (?) paragraph, Tenant shall indemnify Landlord against (i) all expenses incurred by Landlord by reason of Tenant's failure to surrender the Premises in the manner and condition required by paragraphs 8 and 23, ((?) loss of rent by reason of Tenant's failure to so surrender the Premises and consequent delay in the commencement date of any subsequent lease with another party covering all or a portion of the Premises, and (iii) losses or damage arising from the cancellation of any subsequent lease covering the Premises or any portion thereof by reason of Tenant's failure to so surrender the Premises; provided that Landlord shall use its reasonable efforts to mitigate these damages. It is agreed between Landlord and Tenants that the provisions of this paragraph shall survive termination of this lease. 24. TENANT'S QUITCLAIM At the expiration or earlier termination of this lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this lease from the real property of which the Premises are a part. This obligation shall survive said expiration or termination. 25. HOLDING OVER Any holding over after the expiration or termination of this lease (with the written consent of Landlord delivered to Tenant) shall be construed to be a tenancy from month to month at the monthly rent, as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the terms and any option to extend, shall apply to the month to month tenancy. This provisions of this paragraph are in addition to, and do not affect, Landlord's right of re-entry or other rights hereunder or provided by law. If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental in effect during the last month prior to the date of such expiration or termination. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord's right of re-entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord's written consent. 26. SUBORDINATION In the event Landlord's title or leasehold interest is now or hereafter encumbered in order to secure a loan from an institutional lender to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing -23- that the lien of lender's encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney in fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant's (?) possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. If Landlord or such lender requests from Tenant such agreement subordinating its rights, Landlord shall, if Tenant so requests, deliver to Tenant a non-disturbance agreement from each and every lender holding a mortgage or deed of trust encumbering all or any portion of the Premises and which is then prior and superior to this lease, which non-disturbance agreement shall provided that such lender agrees that Tenant's possession and quiet enjoyment of the Premises shall not be disturbed by such lender so long as Tenant performs all of its obligations under this lease, and which shall otherwise be in form reasonably satisfactory to Tenant and such lender. 27. CERTIFICATE OF ESTOPPEL Each party shall, within ten (10) days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord, shall include such other items as Landlord or Landlord's lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. Any such certificate requested by Landlord may be conclusively relief upon by any prospective purchaser or encumbrancer of the Premises or Project. Further, within ten (10) days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statements of Tenant, provided, however, that Tenant shall not be required to deliver such financial statements more often than twice per year. 28. SALE BY LANDLORD In the event the original Landlord hereunder, or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, provided all such liabilities and obligations shall be assumed and be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations arising under this lease. Landlord or its successors shall give prompt notice to Tenant of any such sale or conveyance. -24- 29. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of (?) at private trustee's foreclosure sale, Tenant hereby agrees to attorn (?) the purchaser at any such foreclosure to sale and to recognize such purchaser as the Landlord under this lease, provided such attornment does not disturb Tenant's leasehold interest. 30. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than sixty (60) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord's obligations is such that more than sixty (60) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivables by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency. 31. CONSTRUCTION CHANGES It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such minor changes as Landlord or Landlord's architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed hereon, and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant unless such changes materially interfere with Tenant's use of the Premises. 32. MEASUREMENT OF PREMISES Tenant understands and agrees that any reference to square footage of the Premises is approximate only and includes all interior partitions and columns, one-half of exterior walls, and one-half -25- of the partitions separating the Premises from the rest of the Project and any outside entry overhang, if applicable. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in monthly rent or Common Area Charges or other amounts payable hereunder by reason of inaccuracies in such measurement. 33. EXHIBITS AND ATTACHMENTS All exhibits and attachments to this lease are a part hereof. 34. ATTORNEYS FEES If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease, the Premises, or the Project by reason of any act or commission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for all expenses of litigation, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. 35. SURRENDER The voluntary or other surrender of this lease or the Premises by Tenant, or a mutual cancellation of this lease, shall not (?) a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord or all or any such subleases or subtenancies. 36. WAIVER No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord's consent to or approval of any act by Tenant requiring a Landlord's consent or approval shall not be deemed to waiver or tender unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease. -26- 37. EASEMENTS; AIRSPACE RIGHTS Landlord reserves the right to alter the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant's consent, provided that no such grant or dedication shall interfere with Tenant's use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord's demand, Tenant shall execute, acknowledge and deliver to Landlord, or in accordance with Landlord's instructions, and any all documents, instruments, maps or plats necessary to effectuate Tenant's covenants hereunder. This lease confers no rights either with regard to the subsurface of the land on which the Premises are located or with regard to airspace above the ceiling of the Premises. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises area a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent or result in any liability of Landlord to Tenant. Notwithstanding the foregoing, Landlord shall not have the right to materially block or obstruct the main entrance to the Premises. 38. RULES AND REGULATIONS Landlord shall have the right from time to time to promulgate reasonable rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservations of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Landlord shall make all reasonable efforts to enforce the rules and regulations uniformly against all tenants in the Project, and no such rules and regulations shall require Tenant to pay additional rent under this lease. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. 39. NOTICES All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. All such communications from Landlord to Tenant shall be addressed to Tenant at the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at 3945 Freedom Circle, Suite 1000, Santa Clara, California 95054. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be. -27- 40. NAME Tenant shall not use the name of the Project for any purpose other than as the address of the business conducted by Tenant in the Premises without the prior written consent of Landlord. 41. GOVERNING LAW; SEVERABILITY This lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect. 42. DEFINITIONS As used in this lease, the following words and phrases shall have the following meanings: AUTHORIZED REPRESENTATIVE: any officer, agent, employee or independent contractor retained or employed by either party, acting within authority given him by that party. ENCUMBRANCE: any deed of trust, mortgage or other written security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement. LENDER: the beneficiary, mortgagee or other holder of an encumbrance, as defined above. LIEN: a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic's liens. MAINTENANCE: repairs, replacement, repainting and cleaning. PERSON: one or more human beings, or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities. PROVISION: any term, agreement, covenant, condition, clause, qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party. RENT: monthly rent, additional rent, Common Area Charges, and all other amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease. -28- Words used in any gender include other genders. If there be more than (?) one Tenant, the obligations of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof. 43. TIME Time is of the essence of this lease and of each and all of its provisions. 44. EXAMINATION OF LEASE Submission of this lease for examination or signature (?)by Tenant does not constitute a reservation or option for a lease, and this lease is not effective until its execution and delivery by both Landlord and Tenant. 45. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE Any amount due from Tenant to Landlord hereunder which is not paid when due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of monthly rent, or of Tenant's monthly Common Area Charge, or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of four percent (4%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor prevent Landlord from exercising any of the other rights and remedies available to Landlord. (?) notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 20 shall not affect the imposition of such interest and/or late charge. Notwithstanding the foregoing, Landlord agrees to forego the late charge and interest on past due obligations no more than twice each lease year, provided that Tenant pays the past-due obligation in full within (5) days following notice to Tenant of such past-due obligation. -29- 46. ENTIRE AGREEMENT This lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only an instrument in writing signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all prior contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease. 47. CORPORATE AUTHORITY Tenant shall deliver to Landlord, prior to or at the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant's president or secretary as correct and in full force and effect. 48. RECORDING Neither Landlord nor Tenant shall record this lease or short form memorandum hereof without the consent of the other. 49. REAL ESTATE BROKERS Each Party represents that it has not had dealings with any real estate broker, finder or other person with respect to this lease in any manner, except Cornish & Carey. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom the other party has or purportedly has dealt, and relating to this Lease (including but not limited to any extensions thereof). Landlord shall be solely responsible for paying the commission to Cornish & Carey. 50. CAPITAL EXPENDITURES Notwithstanding anything to the contrary in paragraphs (?) and 8, (i) as to any required capital improvement to the Premises having useful life of more than one year and which is not required by reason of Tenant's specific purposes or activities of the Premises, Landlord shall make such capital improvement and Tenant shall pay to Landlord, as additional rent and in equal monthly installments over the remaining term of this lease, the fraction of the cost of such capital improvement equal to the remaining term of this Lease over the useful life of such capital improvement; (ii) as to any required capital improvement to the Common Area having a useful life of more than one year and which is not required by Tenant's specific purposes or activities of the Premises, the cost thereof shall be included within Common Area Charges proportionately over the useful life of such capital improvement: and (iii) the sum of Tenant's payments under subparagraphs (i) and (ii) above shall not exceed fifteen -30- percent (15%) of the monthly rent payable during the concurrent month. Any determination of useful life, as such term is used in this paragraph 50, shall be reasonably made by Landlord. 51. OPTION TO EXTEND TERM Landlord hereby grants to Tenant the option to extend the term under all the provisions contained in this lease, except for the monthly rent, for one five year period ("Extended Term") following the expiration of the initial term set forth in paragraph 2 ("Initial Term"). The monthly rent for the Extended Term shall be marked rent as determined below, to be increased at the rate of 6% to 8% (as determined below) over the previous year's monthly rent on each one year anniversary date during the Extended Term, provided that in no event shall the monthly rent at the commencement of the Extended Term be less than the monthly rent in effect at the expiration of the Initial Term. Tenant must give written notice to Landlord of its intention to exercise this option at least six (6) months before the expiration of the Initial Term. The parties shall have forty-five (45) days after Landlord receives the notice of exercise in which to negotiate and agree on the market rent (and the precise annual adjustment percentage within the range of 6% to 8%) for the Extended Term. If the parties are unable to agree on the market rent and such annual adjustment percentage within this forty-five (45) day negotiating period, the market rent and such annual adjustment percentage shall be determined in the following manner: (i) Landlord and Tenant shall each select a licensed real estate broker with not less than five years' experience in the business of commercial leasing of property of the same type and use as the Premises and in the same geographical vicinity, (ii) such two real estate brokers shall select a third similarly qualified broker, and the three brokers so selected shall determine the market rent, (iii) the decision of the majority of said brokers shall be final and binding upon the parties hereto, and (iv) the brokers shall base their determination of the market rent on the monthly rent (and the annual adjustment percentage) obtained for property of comparable location, type and use as the Premises with leases of comparable terms. Each party shall pay the expenses and charges of the broker appointed by it and the parties shall pay the expenses and charges of the third broker in equal shares. As soon as the market rent (and the annual adjustment percentage) is so determined, Landlord and Tenant shall immediately execute an amendment to this Lease stating the new monthly rent (i.e., at market rent but not less than the monthly rent in effect at the expiration of the Initial Term) (?) and such annual adjustment percentage. Tenant shall not assign or otherwise transfer this option and any attempt to do so shall render this option null and void; provided that Tenant may assign this option to any corporation or other entity which acquires or is acquired by Circadian or which results from a merger or consolidation with Circadian or which either controls or is controlled by Circadian or which is controlled by any of the foregoing, if, in any such case, this Lease is concurrently so assigned. Further, if Tenant is in default at the time of its exercise of this option or at the last day of the Initial Term, then such exercise shall be ineffective and the lease shall expire at the end of the Initial Term. -31- 52. EXPANSION PROVISION During the term, Tenant may give Landlord notice of desire to lease additional or other space, such notice describing the size and location, and other pertinent information regarding the expansion needs of Tenant. If, thereafter, space meeting Tenant's needs becomes available in the Project (or in other Projects owned or managed by Landlord) then Landlord shall promptly notify Tenant of the availability of such space, and at the request of Tenant made within five (5) days of the date of such notice of availability enter into negotiations concerning the lease of such space. If a new lease is negotiated covering space larger than the space leased under this Lease, Landlord will agree, at the request of Tenant, to terminate the lease effective as of the date of such new lease. Landlord and Tenant shall negotiate the rent and other terms of any lease of any applicable expansion space in good faith at a rent level, and under other terms, substantially similar to that leased to other Tenants in the Project of which the expansion space is a part during the nine (9) month period prior to Landlord's notice to Tenant that such expansion space is available. If Tenant and Landlord do not successfully negotiate a lease within thirty (30) days of commencement of negotiations, Landlord shall not be obligated in any way to terminate Tenant's lease, nor shall Landlord be liable to Tenant for leasing the applicable expansion space to a third party whether under the same or more favorable terms than that offered to the Tenant. This paragraph 52 shall be of no further force and effect in the event of a Sale by Landlord as provided in paragraph 28. The successor owner shall not be obligated to offer any additional space or terminate this lease in any manner. IN WITNESS WHERE, Landlord and Tenant have executed and delivered this lease on the date first above written. LANDLORD: TENANT: CALIFORNIA SECOND, LTD. CIRCADIAN, INCORPORATED a Florida limited partnership a Delaware corporation By: McCANDLESS PARTNERSHIP, a California general partnership, a general partner By: /s/ Birk S. McCandless By: /s/ D. R. Nathe ------------------------- ------------------------------------- Birk S. McCandless, as (Signature) Trustee under the Birk S. McCandless and Mary D. R. Nathe McCandless Inter Vivos ------------------------------------- Trust Agreement dated (Printed Name) February 17, 1982, a general partner V. P. Manufacturing ------------------------------------- (Title) 7/6/87 June 24, 1987 ------------------------- ------------------------------------- (Date) (Date) -32- [MAP] NOW LEASING IN NORTH SAN JOSE McCANDLESS BUSINESS PARK A 250,000 Square Foot Office/Research & Development Center PHASE I PHASE II [MAP] A Two-Phased Acre Master Planned Development Single Story Buildings WORK LETTER AGREEMENT TURNKEY Circadian CONSTRUCTION EXHIBIT C - -------------------------------------------------------------------------------- The Premises shall be improved in accordance with the following: 1. SHELL IMPROVEMENTS: Tenant acknowledges having reviewed the drawings listed in Exhibit C-1 and the improvements constructed or to be constructed in accordance therewith, and Tenant hereby approves the same as installed, subject only to such changes as may subsequently be agreed upon by Landlord and Tenant. Such improvements are hereafter called "Shell Improvements". 2. TENANT IMPROVEMENTS: As used herein, "Tenant Improvements" shall include those items and specifications set forth and described in Exhibits C-2 and C-3, attached hereto, exclusive of Shell Improvements. Landlord shall construct Tenant Improvements in accordance with Exhibits C-2 and C-3, attached hereto, and paragraph 3 below. Landlord and Tenant hereby approve the same. 3. TENANT IMPROVEMENT DESIGN SCHEDULE: The plans and specifications for the Tenant Improvements and any other improvements shall be completed in accordance with the following: (a) Tenant shall approve preliminary floor plan layouts ("Preliminary Floor Plans") to Landlord by June 30, 1987 showing walls, doors, and other Tenant Improvements as desired by Tenant. Landlord shall prepare final plans ("City Ready Plans") ready to submit to the City for a building permit. (b) Between June 30, 1987 and July 10, 1987, Landlord's representative and Tenant's representative shall meet as needed to review and complete the final details related to the Preliminary Floor Plans, so that the resulting July 17, 1987 City Ready Plans are subject only to minor changes. (c) Concurrently with the preparation of the basic plans referred to in (a) and (b) above, Landlord's contractor and subcontractors or independent designers shall prepare design specifications outlining in reasonable detail electrical, mechanical, and any other requirements not included on the City Ready Plans set forth above. No later than July 10, 1987, Tenant shall have -1- made the decisions required, and supplied to Landlord the information necessary, to complete the above specifications and City Ready Plans in enough detail to bid the work, select subcontractors, and to proceed toward final design of electrical, mechanical and other necessary plans in conformance therewith. (d) Tenant's consultant shall provide all other color and material specifications and finish plan by July 10, 1987. 4. CHANGES BY TENANT: Tenant may request changes or additions to the Tenant Improvements; provided, however, that (i) the effectiveness of any such requested change or addition shall be subject to written approval by an authorized representative of Landlord, (ii) to obtaining any required governmental permits or other approvals and (iii) if such approved change order increases the cost of construction, then Tenant shall pay the additional amount due Landlord within ten (10) days of the day of commencement of the lease. 5. CHANGES BY AUTHORITY: Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any governmental permit or approval, or otherwise, then such change, deletion or addition shall promptly be made at Tenant's expense. Failure to obtain any required governmental approval or permit for any Tenant Improvements desired by Tenant shall in no way be cause for Tenant to terminate this lease. 6. DELAYS CAUSED BY TENANT: If the commencement of the term is delayed due in any material respect to Tenant's failure to meet the schedule set forth in paragraph 4 above, or to construction delays because of any changes required by Tenant, or due to any other failures to Tenant to perform its obligations under this lease, then the basic rent and common area charges and any other payments specified in the lease as commencing upon the commencement date of this lease shall nonetheless commence in full as of the date by which Landlord's work would have been, in Landlord's reasonable judgment, completed but for such delays or failure to perform by Tenant. 7. PUNCH LIST: Within ten (10) business days after commencement of the term, Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord should complete or correct in order for the Premises to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those that it contends are not justified. If Tenant does not deliver the Punch List to Landlord within the ten (10) day period, Tenant shall -2- be deemed to have accepted the Premises and approved the construction. Nothing in this paragraph 7 shall delay the commencement of the term or Tenant's obligation to pay rent or to make other payments due Landlord under the lease. 8. All references in the lease to Exhibit C shall be deemed to also include Exhibits C-1, C-2 and C-3. -3- PLANS FOR McCANDLESS BUSINESS PARK CALIFORNIA SECOND, LTD.
ARCHITECT DATE JOB NO. PAGE DESCRIPTION - --------- ------ ------- ---- ----------- V.C. Wong & Associates, 3/6/84 830123 A Cover Sheet Inc. " 3/6/84 " AS 1 General Specifications, Door Schedule, Door Hardware " 3/6/84 " AS 2 Handicapped Requirements, Legend and Symbols " 3/6/84 " AS 3 Sitework Details - Construction Details " 3/6/84 " AA Master Site Development Plan Rev: 11/14/83 & 1/27/84 " 3/6/84 " A1 Site Plan - Bldg 4 " 3/6/84 " A2 Site Plan - Bldg 5 " 3/6/84 " A3 Floor Plan - Bldg 4 " 3/6/84 " A4 Partial Floor Plan - Bldg 5 " 3/6/84 " A5 Partial Floor Plan - Bldg 5 " 3/6/84 " A6 Floor Plan - Bldg 5 " 3/6/84 " A7 Roof Plan - Bldg 4 Rev: 3/22/84 " 3/6/84 " A8 Roof Plan - Bldg 5 Rev: 3/22/84 " 3/6/84 " A9 Elevations - Bldg 4 " 3/6/84 " A10 Elevations - Bldg 5 " 3/6/84 " A11 Building Sections - Bldg 4 & 5 " 3/6/84 " A12 Typical Hall Section & Details Rev: 3/22/84 " 3/6/84 " A13 Soffit Plan - Bldg 4 " 3/6/84 " A14 Soffit Plan - Bldg 5 " 3/6/84 830123 A15 "Title 24" Requirements - Bldg 4 " 3/6/84 830124 A16 "Title 24" Requirements - Bldg 5
ARCHITECT DATE JOB NO. PAGE DESCRIPTION - --------- ------ ------- ---- ----------- V.C. Wong & Associates, 3/6/84 VCW912 S1 General Notes & Details Inc. Rev: 3/22/84 Kee Wong Engineering, Inc. " " 3/6/84 " S2 Details Rev: 3/22/84 " " 3/6/84 " S3 Roof Notes & Details Rev: 3/22/84 " " 3/6/84 " S4 Details " " 3/6/84 " S5 Section - Details " " 3/6/84 " S6 Section - Details Rev: 3/22/84 " " 3/6/84 " S7 Details Rev: 3/22/84 V.C. Wong & Associates, 3/6/84 83825 L1 Site Development Plan & Inc. Rev: 12/19/84 Notes - Bldg 4 Hoffman Associates 1/19/84 & 2/13/84 " " 3/6/84 " L2 Site Development Plan & Rev: 12/19/84, 1/24/84, Notes - Bldg 5 1/19/84 & 2/13/84 " " 3/6/84 " L3 Site Development Plan - Rev: 1/20/84 & Irrigation Legend & Plan 1/24/84 Bldg 4 " " 3/6/84 " L4 Site Development Plan - Rev: 1/20/84 Irrigation Legend & Plan Bldg 5 " " 3/6/84 " L5 Plant List & Notes - Rev: 1/19/84 & Bldg 4 1/24/84 " " 3/6/84 " L6 Plant List & Notes - Rev: 1/19/84 Bldg 5 " " 3/6/84 " L7 Landscape Details Rev: 1/19/84 1/24/84, 2/3/84, 2/13/84 & 3/2/84 " " 3/6/84 " L8 Landscape Details " " 3/6/84 " L9 Landscape Specifications
The above list of plans includes a portion of those for proposed tenant improvements as well as those for the building shell. As such, the above specifications may be superseded to the extent inconsistent with the attached Exhibit C-2. McCANDLESS BUSINESS PARK STANDARD TENANT IMPROVEMENT SPECIFICATIONS Circadian The Tenant Improvements shall include the following items and shall be constructed in compliance with the following specifications: 6200 FINISH CARPENTRY Custom-built cabinets at coffee bar and toilet rooms: - Doors, drawers, and top faced with plastic laminate. - Door Pulls: Stanley, No. 4484, aluminum satin finish. - Cabinet Hinges: Stanley, No. 1501-2. - Catches: Magnetic catches. - Shelf Standards: Stanley, No. 6733 aluminum standards and No. 6731 brackets in aluminum mill finish. - Drawer Slides: Knape & Vogt, No. 1260. 7200 INSULATION - Batt insulation at exterior walls per Title 24 requirements. - R-11 Batt insulation at demising walls and toilet room walls. 8100 METAL DOOR AND WINDOW FRAMES - Anodized aluminum, 20 minute fire rated, door frames and accessories by Eclipse. Color: Dark Bronze. - Anodized aluminum window frames at sidelites to match door frames. 8200 PLASTIC FACED WOOD DOORS - 3 3/4" thick, solid core, fire rated wood doors. - Plastic laminate face, color: Rustic Quartered Oak Natural, W-8-164N by Nevamar. Edges stained to match. 8700 HARDWARE - "Levon" by Schlage, oil rubbed bronze finish. 8800 GLAZING - 1/4" diagonal wire glass at sidelites. - 72" wide x 36" high mirror at toilet rooms. 9250 GYPSUM BOARD - 5/8" thick fire rated gypsum board and accessories. - 3 5/8" wide screw type, channel shaped metal studs, typical. 9500 ACOUSTICAL CEILING - 2' X 4', 1 hour fire rated square edge, acoustical ceiling panels; Natural Fissured II by Conwed. Color: White. - "DXL" 1 hour fire rated suspended ceiling grid and accessories by Donn. Color: White. 9650 RESILIENT FLOORING - Armstrong, Excellon, 1/8" thick, vinyl composition tile. Color to be selected. - 4" rubber carpet and 4" rubber topset base by Burke. Color to be selected. 9680 CARPET - "Impact 30" by Philadelphia Carpets; direct glue down. Color and quality to be same as existing at 3960 N. 1st St. 9900 PAINTING - Gypsum board walls: taped, textured and painted with one coat flat latex by Kelly-Moore. Color to be selected. 9985 PREFINISHED PANELS - 4' wide x 8' high x 1/8" thick Marlite Brand Panels, vinyl- covered aluminum moldings and water-resistant adhesive by Masonite Corporation. Color to be selected. 10160 METAL TOILET COMPARTMENTS - Headrail braced steel toilet partitions and wall mounted urinal screen, porcelain enamel finish, by Flush Metal Partitions Corp. Color to be selected. 10800 TOILET AND BATH ACCESSORIES - Grab Bars, 36" & 42" long, #837. - Towel dispenser and waste receptacle, #234. - Toilet seat cover dispenser, #5831. - Toilet paper holder, #5224. - Napkin disposal, #4781 at women's toilet room. - Napkin/tampon vendor, #401-104, at Women's toilet room only. - Soap dispenser, #6314. All toilet room accessories by Bradley or equal. 15300 FIRE PROTECTION SYSTEM - Complete fire sprinkler system per requirements of local governing agencies and as specified by fire sprinkler subcontractor. - Semi-recessed chrome heads and chrome escutheon plates at suspended ceiling areas. 15400 PLUMBING - Complete plumbing system including all piping, fixtures, and accessories as required to serve toilet rooms and lunchroom as specified by plumbing subcontractors. - Water closet: wall-mounted white vitreous china, water-saver "Afwall" toilet by American-standard; including flush valve assembly and white solid plastic toilet seat. 15400 PLUMBING (Con't) - Urinal (Men's Room Only): White vitreous china, "Jetbrook" urinal by American-Standard; including flush valve assembly. - Lavatory: White vitreous china, "Aqualyn" lavatory by American- Standard; including single handle faucet. - Drinking Fountain: Haws Model No. HWC7 electric water cooler stainless steel finish. 15500 HEATING, VENTILATING AND AIR CONDITIONING - Complete packaged HVAC system including all equipment, ductwork, distribution, zoning and controls as specified by mechanical subcontractor. 16000 ELECTRICAL, LIGHTING AND TELEPHONE - Complete electrical and lighting distribution system including fixtures, devices and controls as specified by electrical subcontractor. - Two electrical duplex outlets, one telephone pull ring and wire per office, typical. - Typical light fixtures shall be fluorescent lay-in type fixtures with energy saving ballasts per Title 24 requirements. Lens: Prismatic lens, clear acrylic. WINDOW COVERINGS - To be same color and quality as that existing at 3960 - N. 1st St. DW 6/24/87 FIRST AMENDMENT TO LEASE This First Amendment to Lease ("Amendment") is made this 1st day of DECEMBER, 1987 and amends that certain lease dated June 9, 1987 ("Lease") by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation ("Tenant"). R E C I T A L S A. Pursuant to the Lease, Tenant leases from Landlord approximately twenty-nine thousand, four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California ("Premises"). The Premises are outlined in red on Exhibit A. B. Paragraph 2(a) of the Lease provides that the term of the Lease is scheduled to commence on December 1, 1987. C. As of this date, Tenant does not intend to occupy the Premises and is currently, with assistance from Cornish & Carey Commercial, attempting to locate a suitable subtenant for the Premises. D. The Lease requires Landlord to construct, at Landlord's expense, those certain Tenant Improvements defined in Exhibit C to the Lease. E. Tenant has requested that Landlord modify the plans and specifications of the Tenant Improvements in accordance with Exhibit B attached hereto. The Tenant Improvements as modified by Exhibit B shall be referred to as the "Modified Tenant Improvements". F. The cost of completing the Modified Tenant Improvements may be less than the cost Landlord would have incurred to complete the Tenant Improvements had Tenant not requested modifications. Any such saving that results from the modification of the Tenant Improvements will be referred to herein as the "Tenant Improvement Savings". G. Landlord and Tenant desire to set forth their -1- agreement regarding the modifications to the Tenant Improvements, the expenditure of the Tenant Improvement Savings and the agreed commencement date of the term of the Lease. NOW, THEREFORE, the parties hereto agree as follows: 1. TERM The parties hereby acknowledge that notwithstanding the provisions of paragraph 2(b) of the Lease or any other provision of the Lease, the term of the Lease shall commence on December 1, 1987 and shall expire on September 27, 1989 (unless extended by Tenant pursuant to Paragraph 51 of the Lease). The parties further acknowledge that said commencement date shall not be delayed for any reason and shall not be conditioned upon the completion of the Tenant Improvements, or Modified Tenant Improvements, or the occupancy of the Premises by Tenant or any subtenant or assignee of Tenant. 2. MODIFICATION OF TENANT IMPROVEMENTS Landlord agrees to diligently pursue the completion of the Modified Tenant Improvements. Within thirty (30) days following the completion of the Modified Tenant Improvements, Landlord shall deliver to Tenant a statement showing the Tenant Improvement Savings, if any. The Tenant Improvement Savings shall be determined based on the change order for such modifications provided by the general contractor installing the Modified Tenant Improvements. 3. APPLICATION OF TENANT IMPROVEMENT SAVINGS Within ten (10) days after Tenant's written request for any additional improvements to the Premises ("Additional Tenant Improvements"), Landlord will commence to prepare plans and specifications for such improvements; thereafter, Landlord and Tenant shall meet as necessary to complete plans in sufficient detail to submit to the City for a building permit. Once a permit is issued for the Additional Tenant Improvements, Landlord shall commence or cause the commencement of such improvements and diligently pursue the same to -2- completion. The Tenant Improvement Savings, if any, shall be applied by Landlord to pay the Total Cost of Additional Tenant Improvements, as defined in Paragraph 4 below. In the event the Total Cost of Additional Tenant Improvements exceeds the Tenant Improvement Savings, then Tenant shall pay the excess amount; fifty percent (50%) of such amount (based on Landlord's estimate) to be paid prior to commencement of construction by Landlord and fifty percent (50%) to be paid when the Additional Tenant Improvements are fifty percent (50%) completed. Tenant shall not be entitled to any rebate, credit, payment or other consideration, in the event the Total Cost of Additional Tenant Improvements is less than the Tenant Improvement Savings. 4. TOTAL COST OF ADDITIONAL TENANT IMPROVEMENTS As used herein, the "Total Cost of Additional Tenant Improvements" shall include (i) the cost of all materials and items installed as part of the Additional Tenant Improvements; (ii) if requested by Tenant, the cost of overtime or special expenditures required to obtain and install the Additional Tenant Improvement; (iii) all costs related to change orders requested by Tenant; (iv) the cost of changes required or requested by governmental authority; (v) permit fees and other fees not previously paid by Landlord as part of the Modified Tenant Improvements; (vi) the cost of consultants, engineers and architects hired by Landlord; (vii) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to complete the Modified Tenant Improvements; and (viii) an amount equal to nine percent (9%) of the sum of items (i) through (vii) above as and for the general contractor's overhead and profit. 5. ESTOPPEL CERTIFICATE In accordance with paragraph 27 of the Lease, Tenant shall execute and deliver to Landlord within ten (10) days after request an Estoppel Certificate substantially in the form of the Estoppel Certificate attached hereto as Exhibit C. -3- 6. SUBLEASE FOR PREMISES Tenant agrees that it shall comply with the provisions of Paragraph 19 of the Lease regarding assigning the Lease or subletting the Premises. Tenant agrees that it shall pay any brokerage fees incurred in obtaining a subtenant for the Premises and shall hold Landlord harmless from all damages resulting from any claim asserted by any broker connected with obtaining a subtenant for the Premises. 7. RESTATEMENT OF OTHER LEASE TERMS All terms, covenants and conditions of the Lease shall remain in full force and effect except as specifically modified herein. IN WITNESS WHEREOF, the parties have executed this Amendment on the date indicated below their signature. LANDLORD: TENANT: CALIFORNIA SECOND, LTD. CIRCADIAN, INCORPORATED a Florida limited partnership a Delaware Corporation By: McCandless Partnership a California general partnership, a general partner By: /s/ Birk S. McCandless By: /s/ John M. Harland -------------------------- ----------------------- Birk S. McCandless, as Trustee (Signature) under the Birk S. McCandless John M. Harland and Mary McCandless Inter Vivos ------------------------ Trust Agreement dated 2/17/82, (Printed Name) a general partner Vice President, Finance 12/1/87 ------------------------ ------------------------- (Title) (Date) 12/1/87 ------------------------ (Date) -4- NOW LEASING IN NORTH SAN JOSE McCandless Business Park A 250,000 Square Foot Office/Research & Development Center [MAP] A Two-Phased 18 Acre Master Planned Development Single Story Buildings EXHIBIT A EXHIBIT B MODIFIED TENANT IMPROVEMENTS CIRCADIAN - II, 3942 N. FIRST STREET SAN JOSE, CALIFORNIA MODIFICATIONS/DELETIONS TO INTERIOR IMPROVEMENT SPECIFICATIONS: A. Complete the office area between columns six and eight, including toilet core (with janitor's closet) as designed. B. In the area encompassing the planned rooms 115 (mail/copy), 116 (machine shop), 117 (burn-in), 117A/117B (QA lab/machinery room) leave out the interior walls and do the following: 1. Eliminate the hard ceiling in 117, 117A, 117B and install a complete T-bar ceiling with drop in light fixtures throughout 2. Reduce the specification of fire sprinkler heads to ordinary temperature 3. Install HVAC for this area by distributing the previously supplied cooling from room 116 and 177A/B. Eliminate cooling for the mail room area (115 off of the office space). 4. Minimal electrical plug outlets as now exist 5. Seal concrete floor C. Eliminate all VCT tile from the high bay production area D. Eliminate all process electrical from high bay production area. If conduit and junction box are still installed leave them in place, but do not pull any new wiring or connect circuitry. No process electrical in areas previously designated machine shop/burn-in/QA lab. E. No chain link fences F. Compressed air piping to remain as installed (with caps) but no quick disconnect couplings G. Wall finishes in the high bay area are to be left rough tape (no sanding) and no paint H. No ceiling paint or duct work paint in the high bay area J. Leave the existing light fixtures in place in the high bay, to approximately G.5, make operative, but do not install new light fixtures 1. If restocking charge is significant, except delivery on remaining high bay light fixtures, and stock pile in the building. K. Cap off the exhaust duct in the wave solder area 4.5/L, and leave duct in place, do not install exhaust fan L. Do not install sink in wave solder area, cap off drain and water supply M. Complete truck dock, shipping and receiving dock, and roll-up door installation SECOND AMENDMENT TO LEASE CIRCADIAN PHASE II LEASE THIS SECOND AMENDMENT TO LEASE ("Amendment") is made this 30th day of ---- August, 1988 and amends that certain lease dated June 9, 1987 as amended by the - ------ First Amendment to Lease dated December 1, 1987 (the Lease as amended shall hereinafter be referred to as the "Phase II Lease") by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation ("Tenant"). R E C I T A L S A. Pursuant to the Phase II Lease, Tenant leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California ("Premises"). The Premises are outlined in red on Exhibit A. B. Pursuant to that certain other lease agreement dated July 3, 1984 as amended by that First Addendum to Lease dated September 20, 1984 and that Second Addendum to Lease dated February 25, 1985 ("Phase I Lease") Tenant also leases from Landlord approximately thirty-three thousand nine hundred and eighty-four (33,984) square feet of space located at 3960 North First Street, San Jose, California ("First Lease"). C. Landlord has agreed to terminate the Phase I Lease on the terms and conditions set forth in that certain Lease Termination Agreement executed concurrently herewith. D. As consideration for Landlord's agreement to terminate the Phase I Lease, Landlord and Tenant have agreed to increase the rent payable under the Phase II Lease and to apply a portion of tenant's security deposit under the Phase II Lease to the payment of certain expenses incurred by Landlord in connection with the termination of the Phase I Lease. -1- NOW THEREFORE, the parties hereto agree as follows: 1. INCREASE IN MONTHLY RENT. Commencing October 1, 1988 the monthly rent payable by Tenant under the Phase II Lease as provided in paragraph 4(a) of the Phase II Lease shall be increased from Nineteen Thousand Two Hundred Seventy-Two and 72/100 Dollars ($19,272.72) per month to Forty-Six Thousand Three Hundred Nine and 65/100 ($46,309.65) per month. 2. SECURITY DEPOSIT. Tenant agrees that Landlord may apply Nine Thousand Five Hundred Sixty-Two and 78/100 Dollars ($9,562,78) of the security deposit being held by Landlord pursuant to paragraph 4(d) of the Phase II Lease to offset certain costs incurred by Landlord in connection with terminating the Phase I Lease and, therefore, the security deposit which will be held by Landlord under the Phase II Lease shall be reduced from Nineteen Thousand Two Hundred Seventy-Two and 72/100 Dollars ($19,272.72) to Nine Thousand Seven Hundred Nine and 94/100 Dollars ($9,709.94). 3. RENT CREDIT FOR UNUSED TENANT IMPROVEMENT ALLOWANCE. Landlord and Tenant agree that Tenant has an outstanding credit of Twenty-Nine Thousand Five Hundred Nineteen and 00/100 Dollars ($29,519.00) ("T.I. Credit ") which pursuant to the terms of the First Amendment to Lease dated December 1, 1987 Tenant was entitled to expend on the construction of additional improvements within the Premises. Landlord agrees that if Tenant does not request additional improvements to the premises, Landlord will apply the T.I. Credit, or any remaining portion thereof, against the monthly rent due under the lease for the last lease month of the term. 4. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions of the Lease shall remain in full force and effect except as specifically modified herein. -2- IN WITNESS WHEREOF, the parties have executed this Amendment on the date indicated below their signatures. LANDLORD: TENANT: CALIFORNIA SECOND, LTD. CIRCADIAN, INCORPORATED a Florida limited partnership a Delaware Corporation By: McCandless Partnership a California general partnership, a general partner By: /s/ Birk S. McCandless By: /s/ John M. Harland -------------------------- ----------------------- Birk S. McCandless, as (Signature) Trustee under Trust John M. Harland Agreement dated 2/17/84, ------------------------ a general partner (Printed Name) Vice President, Finance 8/30/88 ------------------------ ------------------------- (Title) (Date) 8/16/88 ------------------------ (Date) McCandless Business Park A 250,000 Square Foot Office/Research & Development Center [MAP] EXHIBIT A SECOND AMENDMENT TO LEASE CIRCADIAN PHASE II LEASE THIS SECOND AMENDMENT TO LEASE ("Amendment") is made this 30th day of August, 1988 and amends that certain lease dated June 9, 1987 as amended by the First Amendment to Lease dated December 1, 1987 (the Lease as amended shall hereinafter be referred to as the "Phase II Lease") by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation ("Tenant"). R E C I T A L S A. Pursuant to the Phase II Lease, Tenant leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California ("Premises"). The Premises are outlined in red on Exhibit A. B. Pursuant to that certain other lease agreement dated July 3, 1984 as amended by that First Addendum to Lease dated September 20, 1984 and that Second Addendum to Lease dated February 25, 1985 ("Phase I Lease") Tenant also leases from Landlord approximately thirty-three thousand nine hundred and eighty-four (33,984) square feet of space located at 3960 North First Street, San Jose, California ("First Lease"). C. Landlord has agreed to terminate the Phase I Lease on the terms and conditions set forth in that certain Lease Termination Agreement executed concurrently herewith. D. As consideration for Landlord's agreement to terminate the Phase I Lease, Landlord and Tenant have agreed to increase the rent payable under the Phase II Lease and to apply a portion of tenant's security deposit under the Phase II Lease to the payment of certain expenses incurred by Landlord in connection with the termination of the Phase I Lease. -1- NOW THEREFORE, the parties hereto agree as follows: 1. INCREASE IN MONTHLY RENT. Commencing October 1, 1988 the monthly rent payable by Tenant under the Phase II Lease as provided in paragraph 4(a) of the Phase II Lease shall be increased from Nineteen Thousand Two Hundred Seventy-Two and 72/100 Dollars ($19,272.72) per month to Forty-Six Thousand Three Hundred Nine and 65/100 ($46,309.65) per month. 2. SECURITY DEPOSIT. Tenant agrees that Landlord may apply Nine Thousand Five Hundred Sixty-Two and 78/100 Dollars ($9,562,78) of the security deposit being held by Landlord pursuant to paragraph 4(d) of the Phase II Lease to offset certain costs incurred by Landlord in connection with terminating the Phase II Lease and, therefore, the security deposit which will be held by Landlord under the Phase II Lease shall be reduced from Nineteen Thousand Two Hundred Seventy-Two and 72/100 Dollars ($19,272.72) TO NINE THOUSAND SEVEN HUNDRED NINE AND 94/100 DOLLARS ($9,709.94). 3. RENT CREDIT FOR UNUSED TENANT IMPROVEMENT ALLOWANCE. Landlord and Tenant agree that Tenant has an outstanding credit of Twenty-Nine Thousand Five Hundred Nineteen and 00/100 Dollars ($29,519.00) ("T.I. Credit ") which pursuant to the terms of the First Amendment to Lease dated December 1, 1987 Tenant was entitled to expend on the construction of additional improvements within the Premises. LANDLORD AGREES THAT IF TENANT DOES NOT REQUEST ADDITIONAL IMPROVEMENTS TO THE PREMISES, LANDLORD WILL apply the T.I. Credit, or any remaining portion thereof, against the monthly rent due under the lease for the last lease month of the term. 4. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions of the Lease shall remain in full force and effect except as specifically modified herein. -2- IN WITNESS WHEREOF, the parties have executed this Amendment on the date indicated below their signatures. LANDLORD: TENANT: CALIFORNIA SECOND, LTD. CIRCADIAN, INCORPORATED a Florida limited partnership a Delaware Corporation By: McCandless Partnership a California general partnership, a general partner By: /s/ Birk S. McCandless By: /s/ John M. Harland -------------------------- ------------------------- Birk S. McCandless, as (Signature) Trustee under Trust John M. Harland Agreement dated 2/17/84, ------------------------- a general partner (Printed Name) Vice President, Finance 8/30/88 ------------------------- ------------------------- (Title) (Date) 8/16/88 ------------------------- (Date) McCandless Business Park A 250,000 Square Foot Office/Research & Development Center [MAP] EXHIBIT A December 6, 1995 Mr. Ken Massey NOVELLUS SYSTEMS, INC. 432 North 44th Street, Suite 420 Phoenix, Arizona 85008 RE: THREE GATEWAY Dear Ken: Please find enclosed a fully executed copy of the lease agreement for your premises in Three Gateway, along with a copy of the construction pricing estimate from Jokake. Please call me if you have any questions. Once again, we are pleased to welcome you to the building! Sincerely, /s/ Rebecca White Rebecca White Property Manager enc. THREE GATEWAY - OFFICE LEASE SUMMARY OF SELECTED MATTERS LANDLORD: DMB PROPERTY VENTURES LIMITED PARTNERSHIP TENANT: NOVELLUS SYSTEMS, INC. The Premises: Suite 1140 Area of the Premises: 2,824 rsf - 2,521 rsf The Term: Three (3) Years Commencement and Expiration Dates: February 1, 1996 Tenant's Proportionate Share: 1.3% Expense Stop: Base Year 1996 Base Rent: $56,480.04 per year, $4,706.67 per month Tenant's address for pre-occupancy notices: 432 North 44th Street, #420 Phoenix, Arizona 85008 Landlord's address for payment of rent: 410 North 44th Street, Suite 290 Phoenix, Arizona 85008 Tenant Improvement Allowance: $8.00 per usf Security Deposit: $4,706.67 Description of Tenant's Business on the Premises: General Office Name of Guarantors: N/A THIS SUMMARY IS FOR PURPOSES OF CONVENIENCE, AND IS NOT PART OF THE LEASE ITSELF TABLE OF CONTENTS 1. TERM AND POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . 1 2. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. SECURITY DEPOSIT AND GUARANTIES . . . . . . . . . . . . . . . . . . 2 4. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6. PARKING AND COMMON USE AREAS. . . . . . . . . . . . . . . . . . . . 3 7. OPERATING COSTS, REAL PROPERTY TAXES AND UTILITIES. . . . . . . . . 3 8. CONSTRUCTION, DELIVERY, AND CONDITION . . . . . . . . . . . . . . . 4 9. REPAIR AND MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . . 4 10. ALTERATIONS AND PERSONAL PROPERTY . . . . . . . . . . . . . . . . . 4 11. CERTAIN RIGHTS RESERVED BY LANDLORD . . . . . . . . . . . . . . . . 5 12. DAMAGE TO PROPERTY; INJURY TO PERSONS; INSURANCE. . . . . . . . . . 5 13. FIRE AND CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . 5 14. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 15. ASSIGNMENT AND SUBLETTING; SALE BY LANDLORD . . . . . . . . . . . . 6 16. ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . 6 17. LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 6 18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 19. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 20. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7 EXHIBITS -------- EXHIBIT "A" - Legal Description EXHIBIT "B" - Premises and Area of Exclusivity EXHIBIT "C" - Tenant Improvements EXHIBIT "D" - Building Rules and Regulations THREE GATEWAY OFFICE LEASE THIS LEASE is made this ______ day of November, 1995, by and between DMB PROPERTY VENTURES LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and NOVELLUS SYSTEMS, INC. a California corporation ("TENANT"). Landlord hereby leases to Tenant and Tenant leases from Landlord for the term and upon the conditions and agreements set forth in this lease a portion of the real property described on Exhibit "A", as illustrated by cross-hatching or otherwise on the plan attached as Exhibit "B", consisting of approximately 2,824 rentable square feet of space (the "PREMISES") known as Suite 1140 in Three Gateway (the "BUILDING") on the first floor. The address of the Building is 410 North 44th Street, Phoenix, Arizona 85008. 1. TERM AND POSSESSION (a) The term of this lease, and Tenant's obligation to pay rent, shall commence February 1, 1996 (the "COMMENCEMENT DATE") and shall expire on January 30, 1999. Upon request of either party after the term has commenced, Landlord and Tenant shall jointly execute a memorandum confirming the Commencement Date. (b) Upon the termination or expiration of this lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's property as provided in Article 10. (c) Tenant shall have no right to hold over after the expiration of the term of this lease without Landlord's consent. If, with Landlord's consent, Tenant holds over after the expiration of this lease, Tenant shall become a tenant from month to month only, upon all of the terms of this lease except that the amount of the Base Rent shall be increased to an amount equal to 150% of the Base Rental Rate in effect immediately prior to the expiration. (d) RIGHT OF FIRST REFUSAL. Tenant shall have a right of first refusal to lease any adjacent, vacant space on the eleventh floor except any space that is subject to renewal by the current tenant, or any space that is subject to previously granted options, rights of first refusal or offer, or similar rights. If a qualifying space becomes vacant during Tenant's initial term, Landlord shall notify Tenant that the space is available. Tenant shall have five (5) days following receipt of Landlord's notice to notify Landlord of its intention to lease the space, which notice shall be irrevocable. The terms and conditions shall be mutually agreed upon between the parties at that time. In the event Tenant does not exercise its right to lease the space in the time specified above, Landlord may proceed to lease such space to the general public. (e) OPTION TO RENEW. Provided that Tenant is not in default under any provision of this lease, and provided that Tenant is still occupying the premises, Tenant shall have the option to renew this lease for one (1) additional term of three (3) years. Tenant shall exercise said option by giving notice to Landlord at any time not less than six (6) months and not more than one (1) year prior to the expiration of the initial term (the "Option Exercise Date"). If Tenant elects to extend the initial term of this lease, such extended term shall be upon and subject to all of the terms, covenants and conditions of this lease except that the rental rate, operating expenses, tenant improvements and any other terms as negotiated between the parties, shall be mutually agreed upon at that time. 2. RENT (a) BASE RENT. Tenant shall pay to Landlord during the term of this lease at the office of Landlord or at such other place as Landlord may designate, without notice, demand, deduction or set-off, in equal monthly installments in advance on the first day of each calendar month, Base Annual Rent in the amount of: $56,480.04 per year; $4,706.67 per month In the event the Commencement Date does not occur on the first day of a calendar month, Tenant shall pay rent on the Commencement Date for the fractional month on a pro rata basis. (b) NATURE OF PAYMENTS. All sums required to be paid by Tenant under this lease, whether or not so designated, are rent. (c) LATE CHARGES AND INTEREST. Any amount due from Tenant to Landlord which is not paid when due shall bear interest at three percent in excess of the prime rate as established from time to time by Bank One or its successor in interest from the due date until paid, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, any rent or other payment not paid within ten days of its due date shall be subject to five percent late charge representing the additional costs and burdens of special handling. 1 3. SECURITY DEPOSIT AND GUARANTIES Concurrently with the execution of this lease, Tenant shall: (a) Deliver to Landlord an unconditional guaranty of the performance of this lease by Tenant, in form satisfactory to Landlord, executed by N/A; and (b) Deposit with Landlord the sum of $4,706.67 as security for the full and faithful performance of this lease. If Tenant defaults with respect to any provision of this lease, Landlord may apply all or any part of the security deposit for the payment of any sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. Application of the deposit shall not constitute a cure of the default by Tenant to which the application relates. If any portion of the security deposit is so applied, Tenant shall, within five days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount. Landlord shall not be required to keep the security deposit separate from its general funds, and Tenant shall not be entitled to interest on the deposit. If Tenant shall fully and faithfully perform every provision of this lease to be performed by Tenant, the security deposit or any balance thereof shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest). 4. USE (a) Tenant shall continuously use and occupy the Premises for GENERAL OFFICE and shall use them for no other purpose whatsoever without Landlord's prior written consent. Tenant shall be open for business during normal business hours at least five days a week (excluding, at Tenant's option, recognized legal holidays such as Christmas and New Year's Day). Tenant shall maintain, at all times, an average density no greater than one person for each two hundred rentable square feet of the premises. (b) Tenant shall: (i) Not use or permit upon the Premises anything that would invalidate any policies of insurance now or hereafter carried on the Premises or that will increase the rate of insurance on the Premises or the Building; (ii) Pay all additional insurance premiums which may be caused by the use which Tenant shall make of the Premises; (iii) Not in any manner deface or injure the Premises or overload any floor of the Premises; (iv) Not do anything or permit anything to be done upon the Premises in any way tending to create a nuisance, or tending to disturb any other lessee in the Building or tending to injure the reputation of the Building, including, without limitation, the playing of music audible outside the Premises and the placement of signs in or displayed through any window or door; (vi) Not use the Premises for lodging or sleeping purposes; (vii) Not commit or suffer to be committed any waste upon the Premises; (viii) Not violate any recorded restriction or covenant affecting the Building, nor use the Premises for any purpose which would be in violation of any exclusive rights or use granted to other tenants in the Building. Landlord shall not grant exclusive rights which would prohibit Tenant from using the Premises for the purposes stated in Article 4(a) above. (c) Tenant, at Tenant's expense, shall comply with all present and future federal, state and local laws, ordinances, order, rules and regulations (collectively, "LAWS"), and shall procure all permits, certificates, licenses and other authorizations required by applicable Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. Tenant shall defend, indemnify and hold harmless Landlord and Landlord's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, and reasonable attorneys' fees, arising out of or relating to any failure to Tenant to comply with applicable Laws. Without limiting the foregoing, Tenant shall comply with all Laws relating to environmental matters, and shall defend, indemnify and hold harmless Landlord and Landlord's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, clean-up costs and reasonable attorneys' fees, arising from or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant or hazardous or toxic material, substance or matter from, on or at the Premises or the Building as a result of any act or omission on the part of Tenant. Tenant's indemnification obligations shall survive the expiration or termination of this lease. 5. TAXES (a) Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon Tenant's fixtures, furnishings, equipment and other personal property located in or upon the Premises. Tenant shall cause 2 the fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real property of which the Premises form a part. In the event any or all of Tenant's fixtures, furnishings, equipment and other personal property shall be assessed and taxed with the real property, Tenant shall pay to Landlord Tenant's share of the taxes within ten days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of the taxes applicable to Tenant's personal property. (b) Tenant shall, simultaneously with the payment of any sums required to be paid under this lease as rent, additional rent or otherwise, reimburse Landlord for any sales, use, rental, transaction privilege or other excise tax imposed or levied on, or measured by, the amount paid. 6. PARKING AND COMMON USE AREAS All parking areas, parking structures, access roads, driveways, pedestrian sidewalks and ramps, landscaped areas, drainage facilities, exterior lighting, signs, courtyards, corridors, elevators (if any), entryways, public restrooms, and other areas and improvements provided by Landlord for the general use in common of tenants, their officers, agents, employees, customers and other invitees (all of which are referred to as "COMMON FACILITIES") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to modify, enlarge or eliminate common facilities and to establish, modify and enforce reasonable rules and regulations with respect thereto. Without limiting the foregoing, Landlord may designate separate or combined parking areas for visitors, tenants and employees. Tenant shall be entitled to the use of two (2) covered reserved spaces and four (4) covered unreserved spaces in the parking garage adjacent to the building at no cost for the term of this lease. Landlord to determine the location of said spaces and may re-assign said spaces from time to time, as Landlord deems necessary. 7. OPERATING COSTS, REAL PROPERTY TAXES AND UTILITIES (a) Tenant shall pay Tenant's pro rata share of all of the Building's operating cost, but only to the extent the Building's operating cost exceeds the actual operating costs incurred in the calendar year 1996 (the "EXPENSE STOP"). The Building's operating cost consists of those costs and expenses directly associated with managing, operating, maintaining and repairing the office building containing the Premises and the associated parking facilities, grounds and common facilities, including all electrical, heating, ventilating, air conditioning, plumbing and other building systems; exterior and interior water features; utilities; fire and extended coverage insurance, and rent interruption insurance; window cleaning; janitorial services; energy management costs; real property taxes and general and special assessments; assessments and other amounts legally payable to the property owner's association created under the restrictive covenants to which the Building is subject; wages, salaries and employee benefits of persons performing services in connection with the Building; parking lot and parking structure sweeping, sealing, patching, restriping, repair and maintenance; public liability and property damage insurance; supplies, materials, tools, parts, and equipment; equipment rental charges; bookkeeping, accounting, legal and other professional charges and expenses; fees for permits and licenses; administrative expenses; taxes other than real property taxes; service and maintenance contracts; signage; and landscaping. The Building's operating cost shall not include ground rents, debt service, depreciation, income taxes, general overhead, tenant improvements, brokerage commissions, new construction, or replacements outside of normal maintenance and repair. Any expenditure for an Item with a useful life extending over several years shall, if necessary to avoid material distortion of operating costs, be amortized over the useful life of the item and the amortization amount included in each year's operating cost. Operating Costs, Real Property Taxes and Utilities shall be further categorized as follows: Category A: Expenses not within Landlord's control. Category A expenses include Utility Costs, Insurance Costs and Governmental Taxes Category B: Expenses within Landlord's control. Category B expenses shall include all expenses not specifically named in Category A above. Tenant shall pay Operating Costs, Real Property Taxes and Utilities increases in accordance with this Article 7, however, increases in Category B expenses shall not be in excess of six percent (6%) per year. On the first day of each month Tenant shall pay a monthly advance charge on account of Tenant's pro rata share of the Building's operating cost in excess of the Expense Stop. The amount of the monthly charge shall be established by Landlord and may be adjusted from time to time by Landlord to reflect Landlord's estimate of current and anticipated cost. Within 120 days after the end of each fiscal year as established for the Building by Landlord, Landlord shall provide to Tenant a reasonably detailed summary of the actual operating costs showing Tenant's actual share and the amount by which Tenant has overpaid or underpaid. Any overpayment shall be credited to Tenant's account. Any deficiency shall be payable within ten days after receipt of the statement. In the alternative, Landlord may, at its option during all or part of the Lease term, bill Tenant for its pro rata share of operating cost in excess of the Expense Stop, in arrears, based on actual costs as they are incurred, in which case Tenant shall pay the invoice within ten days after receipt. (b) Tenant's pro rata share of the Building's operating cost shall be that proportion that the rentable area of the Premises bears to the total rentable area of all rentable area in the Building. The operating cost for the fiscal year in which this lease commences or terminates shall be apportioned so that Tenant shall not be responsible for costs that relate to periods prior to or subsequent to the term of this lease except any period 3 of holding over. Rentable area shall be measured according to BOMA standards as approved July 31, 1980. (c) Tenant shall be solely responsible for the cost of any heating, ventilation or air conditioning provided to the Premises at Tenant's request outside of normal business hours, measured at an hourly rate reasonably established by Landlord and billed to Tenant from time to time by Landlord. Normal business hours for the Building are from 7:00 a.m. to 6:00 p.m. on Monday through Friday, and 8:00 a.m. to 12:00 p.m. on Saturday, excluding holidays. 8. CONSTRUCTION, DELIVERY, AND CONDITION (a) If delivery of possession of the Premises to Tenant is delayed beyond the anticipated Commencement Date because of a delay in the completion of construction of the Premises by Landlord or because of a failure of an existing tenant to surrender possession of the Premises to Landlord, then this lease shall remain in full force and effect, Landlord shall not be liable to Tenant for any damage occasioned by delay, and the Commencement Date shall be changed to the date actual delivery of possession to Tenant is effected. Notwithstanding the foregoing, if delivery of possession is delayed more than 30 days after the anticipated Commencement Date as set forth in Article 1(a), Tenant, by written notice to Landlord, may terminate this lease prior to taking possession, and upon such termination any security deposit shall be refunded and both Landlord and Tenant shall be released of all further obligation. (b) Landlord shall construct improvements in the Premises in accordance with the plans and specifications attached as or identified in Exhibit "C". If no Exhibit "C" is attached, Tenant accepts the Premises AS IS. Landlord has no obligation to design or construct Improvements or to make alterations in the Premises except as specifically set forth in Exhibit "C". Tenant shall pay to Landlord upon the Delivery Date the amount by which the cost of the work performed by Landlord exceeds $20,168, and shall pay, in addition, for any increases in costs resulting from changes in the approved plans and specifications made at Tenant's request. Any changes in the approved plans and specifications shall be subject to approval by both Landlord and Tenant. Any defects in construction performed by Landlord shall automatically be waived unless specified in a written punchlist delivered to Landlord within ten days after Tenant takes possession. Landlord shall promptly correct all defects set forth in the punchlist. 9. REPAIR AND MAINTENANCE (a) Tenant shall maintain the interior of the Premises in good condition and repair except that Landlord shall provide normal janitorial service five nights per week. If Tenant does not perform necessary repairs and maintenance, Landlord may, but need not, make necessary repairs and replacements, and Tenant shall pay Landlord the cost upon demand. (b) Subject to the provisions of Article 7, Landlord shall repair and maintain the common facilities, all building systems (electrical, heating, ventilation, air conditioning and plumbing), plate glass, and the roof, exterior and structural elements of the Building, and shall provide normal janitorial services. Landlord shall not be responsible to make any repairs or perform any maintenance unless written notice of the need for such repairs or maintenance is given by Tenant. Except in the case of a fire or casualty as provided in Article 13, there shall be no abatement of rent and no liability of Landlord by reason of any entry to the Premises, interruption of services or facilities, temporary closure of common facilities, or interference with Tenant's business arising from the making of any repairs or maintenance. 10. ALTERATIONS AND PERSONAL PROPERTY Tenant shall not make or suffer to be made any alterations, additions or improvements to the Premises, including signs, without the prior written consent of Landlord, which shall not unreasonably be withheld. Landlord may condition its consent upon provision of a payment bond, in amount and form reasonably satisfactory to Landlord, covering the work to be done by Tenant's contractor. Any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall upon installation become a part of the realty and belong to Landlord. Tenant shall not install any antenna, satellite dish or other fixture or equipment on the roof or in the common facilities. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense and any contractor or person selected by Tenant to perform the work must first be approved in writing by Landlord. Tenant shall not permit any mechanic's or materialmen's lien to stand against the Premises for any labor or materials provided to the Premises by any contractor or other person hired or retained by Tenant. Tenant shall cause any such lien to be discharged (by bonding or otherwise) within ten days after demand by Landlord, and if it is not discharged within ten days, Landlord may pay or otherwise discharge the lien and immediately recover all amounts so expended from Tenant as additional rent. Upon the expiration or sooner termination of the term of this lease or of Tenant's right to possession, Tenant shall remove all of its movable furniture and trade fixtures, and, if requested by Landlord, at Tenant's sole cost and expenses, forthwith remove any alterations, additions or improvements made by Tenant which are designated by Landlord to be removed. Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the lease. 4 11. CERTAIN RIGHTS RESERVED BY LANDLORD Landlord shall have the right: (i) To change the Building's name or street address; (ii) To enter the Premises either personally or by designated representative at all reasonable times for the purpose of examining or inspecting the same, and showing the same to prospective purchasers or lessees; (iii) To grant to anyone the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted under Article 4. 12. DAMAGE TO PROPERTY; INJURY TO PERSONS; INSURANCE (a) Tenant shall defend, indemnify and hold Landlord harmless from any and all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises, regardless of fault or negligence which is imputed to Landlord as the owner of the Building but which involves a condition of the Premises within the control of tenant, its employees or contractors. Tenant shall further defend, indemnify and hold Landlord harmless from any and all claims arising from any breach or default in the performance of this lease by Tenant, or arising from any act or negligence of Tenant, or of its agents or employees, and from all costs, attorney's fees, expenses and liabilities incurred as a result of any such claim. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons, in, upon, or about the Premises from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, unless caused by active negligence of Landlord, its agents or employees. Landlord shall not be liable for loss of or damage to any property by theft or otherwise, or for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of any building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from dampness or any other cause whatsoever. Landlord shall not be liable for interference with the natural light. Tenant shall give immediate notice to Landlord of any fire, accident or defect discovered with the Premises or the Building. Tenant acknowledges that it can protect itself against any or all of the foregoing risks by procuring appropriate insurance. (b) Tenant shall maintain fire and extended coverage insurance throughout the term of this lease in an amount equal to one hundred percent of the replacement value of Tenant's fixtures, equipment and other personal property located on the Premises together with such other insurance as may be required by Landlord's lender or by any government agency. All proceeds of Tenant's policy of fire and extended coverage insurance shall be payable to Tenant, and all proceeds of policies of insurance procured by Landlord shall be payable to Landlord. Tenant hereby waives any right to recovery from Landlord and Landlord hereby waives any right of recovery from Tenant for any loss or damage (including consequential loss) resulting from any of the perils insured against in the standard form fire insurance policy with extended coverage endorsement. During the term of this lease, the Tenant shall, at Tenant's expense, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises or in the common areas. The limitation of liability of such insurance shall be not less than One Million Dollars in respect to injury or death of one person and to the limits of not less than One Million Dollars in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars in respect to property damage. All of tenant's policies of liability insurance shall name Landlord as an additional insured, and all policies of insurance or copies thereof required to be carried by Tenant under this Article 12 shall be delivered to Landlord prior to the Commencement Date and thereafter at least thirty days prior to the expiration of the then current policies. Each policy shall contain an endorsement prohibiting cancellation or non-renewal without at least 30 days prior notice to Landlord. 13. FIRE AND CASUALTY If the Premises are wholly or partially destroyed or damaged by fire or other casualty, Landlord shall restore the Premises with reasonable diligence; provided, however, that Landlord shall have no obligation to restore improvements not originally provided by Landlord or to replace any of Tenant's fixtures, furnishings, equipment or personal property. Tenant shall promptly replace and restore all of Tenant's fixtures, furnishings and equipment damaged or destroyed by the casualty. Landlord need not commence repairs until insurance proceeds are available. Proceeds of insurance payable with respect to a fire or other casualty shall be received and held by Landlord. In the event the Premises are destroyed or damaged by any fire or casualty and in Landlord's reasonable estimation restoration will require more than ninety days, then either Landlord or Tenant shall have the option to terminate this lease by giving notice to the other. If a fire or casualty occurs within the last three years of the lease term (as extended by any renewal or extension options which have been exercised), or if any portion of the Building other than the Premises is damaged or destroyed by fire or casualty and restoration is expected to require in excess of 45 days, then Landlord may by written notice to Tenant terminate this Lease. In any case, Landlord shall retain all insurance proceeds paid under Landlord's insurance policies and Tenant shall retain all insurance proceeds paid under Tenant's insurance policies. If this lease is not terminated as provided above, this lease shall continue in full force and effect, but rent shall abate until the restoration is substantially complete. The provisions of this lease shall govern when this lease shall be 5 terminable as a result of a fire or casualty, and no other rule or statute on the subject shall apply. 14. CONDEMNATION In the event any portion of the Building shall be appropriated or taken under the power of eminent domain this lease shall terminate and expire as of the date Tenant is required to vacate the Premises, or, if no portion of the Premises is taken, as of the date designated in a notice from Landlord establishing the date of closure of the Building. If any portion of the common facilities, excluding the Building, is appropriated or taken under the power of eminent domain, this lease shall not terminate. All awards or compensation for any taking of any part of the Premises or the Building or common facilities, whether payable to Landlord or Tenant, shall be the sole property of Landlord. Notwithstanding anything to the contrary in this Article, Tenant shall be entitled to receive any portion of an award of compensation relating to damage to or loss of trade fixtures or other personal property belonging to Tenant, and Landlord shall be under no obligation to restore or replace Tenant's furnishings, fixtures, equipment and personal property. For the purposes of this Article 14, a voluntary sale or conveyance in lieu of condemnation shall be deemed in appropriation or a taking under the power of eminent domain. 15. ASSIGNMENT AND SUBLETTING; SALE BY LANDLORD (a) Tenant shall not, either voluntarily or by operation of law, assign, hypothecate or transfer this lease, or sublet the Premises or any part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees, without the Landlord's prior written consent, which shall not be unreasonably withheld provided the proposed assignee or sublessee is reasonably satisfactory to Landlord as a credit and character and will occupy the Premises for purposes not inconsistent with Tenant's purposes as stated in Article 4 or other purposes approved by Landlord. Landlord shall be under no obligation to give or withhold consent until all information reasonably required by Landlord with respect to the identity, background, experience and financial worth of the proposed assignee, transferee, or subtenant has been provided. No hypothecation, assignment, sublease or other transfer to which Landlord has consented shall be effective for any purpose until such time as fully executed documents of such transaction have been provided to Landlord, and, in the case of an assignment, the assignee has attorned directly to Landlord, and in the case of a sublease, the sublessee has acknowledged that the sublease is subject to all of the terms and conditions of this lease. Any assignment, mortgage, transfer or subletting of this lease which is not in compliance with the provisions of this Article 15 shall be voidable and shall, at the option of Landlord, terminate this lease. The consent by Landlord to an assignment or subletting shall not relieve Tenant from any liability or obligation, whether or not then accrued. Except as provided in this Article, this lease shall be binding upon and inure to the benefit of the successors and assigns of the parties. (b) In the event of a sale or conveyance by Landlord of the Premises, Landlord shall be relieved of all future liability upon any of the covenants or conditions, express or implied, in favor of Tenant, and Tenant shall to look solely to Landlord's successor in interest. This lease shall not be affected by any sale, and Tenant shall attorn to the successor in interest. If any security deposit has been made by Tenant, the successor in interest shall be obligated to return it in accordance with the terms hereof and Landlord shall be discharged from any further liability in reference thereto. 16. ESTOPPEL CERTIFICATE (a) Tenant shall at any time and from time to time upon not less than ten day's prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this lease is unmodified and in full force and effect (or if modified, stating the nature of such modification and certifying that this lease, as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any; (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if they are claimed; and (iii) certifying such other matters relating to this lease as Landlord may reasonably request. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. (b) Tenant's failure to deliver a statement within the time prescribed shall constitute a material default by Tenant under this Lease and shall be conclusive upon Tenant (i) that this lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rental has been paid in advance. 17. LANDLORD'S REMEDIES (a) The following shall constitute Events of Default: (i) Tenant's failure to pay rent or any other amount due under this lease within five days after notice of nonpayment. (ii) Tenant's failure to execute, acknowledge and return an estoppel certificate under Article 16 or a subordination agreement under Article 19, within ten days after request. 6 (iii) Tenant's failure to perform any other obligation under this lease within fifteen days after notice of nonperformance; provided, however, that if the breach is of such a nature that it cannot be cured within fifteen days, Tenant shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. (iv) Tenant vacates, abandons, or otherwise ceases to use the Premises on a substantial continuing basis except temporary absence excused by reason of fire, casualty, or other cause wholly beyond Tenant's control. (b) Upon the occurrence of an Event of Default, Landlord, at any time thereafter without further notice or demand may exercise any one or more of the following remedies concurrently or in succession: (i) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this lease, and retake exclusive possession of the Premises. (ii) From time to time relet all or portions of the Premises, using reasonable efforts to mitigate Landlord's damages. In connection with this reletting, Landlord may relet for a period extending beyond the term of this lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Landlord shall be entitled to recover all of its then prospective damages for the balance of the lease term measured by the difference between amounts payable under this lease and the anticipated net proceeds of reletting. In no event shall Tenant be entitled to receive any amount representing the excess of avails of reletting over amounts payable hereunder. (iii) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest at the rate of 18% per annum or the highest lawful rate, whichever is less. (iv) Enforce the statutory Landlord's lien on Tenant's property. (v) Recover all attorneys' fees and other costs and expenses incurred by Landlord in connection with enforcing this lease, recovering possession, reletting the Premises or collecting amounts owed. (vi) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Landlord plus 20% for special handling, supervision, and overhead. (vii) Pursue other remedies available at law or in equity. (c) Upon a termination of Tenant's right to possession, whether or not this lease is terminated, subtenancies and other rights of persons claiming under or through Tenant: (i) shall be terminated or (ii) Tenant's interest shall be assigned to Landlord. Landlord may separately elect termination or assignment with respect to each such subtenancy or other matter. 18. NOTICES All notices to be given by one party to the other under this lease shall be in writing, mailed or delivered to each at the address set forth at the end of this lease or at a changed address if notice of the change is given to the other party in writing. In the case of notice to Tenant after Tenant takes possession of the Premises, notice shall be sufficient if mailed or delivered to the address of the Premises. Mailed notices shall be sent by United States certified or registered mail, postage prepaid. Such notices shall be deemed to have been given upon posting in the United States mail. Actual notice shall be no substitute for written notice under any provision of this lease. 19. SUBORDINATION Landlord expressly reserves the right at any time to place liens and encumbrances on and against the Premises and the Building, superior in lien and effect to this lease and the estate created hereby, and Tenant shall attorn to the purchaser of the Building under any trustee's sheriff's or foreclosure sale. The subordination of this Lease shall be self-operative without the necessity of a written instrument. Tenant shall nevertheless execute within ten days after request a subordination and attornment agreement on the form customarily used by the holder of the lien or encumbrance with subordinates this Lease to the lien or encumbrance, which provides that the holder will recognize Tenant's rights under this Lease, notwithstanding any foreclosure of the lien or encumbrance, and which requires Tenant to attorn to the purchaser as provided above. 20. GENERAL PROVISIONS (a) This lease and the obligations of Tenant shall not be affected or impaired because Landlord is unable to fulfill any of its obligations or is delayed in doing so if such inability or delay is caused by reason of any strike, lockout, civil commotion, war-like operations, invasion, rebellion, hostilities, military or usurped 7 power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, Act of Act or other cause beyond the control of the Landlord. (b) Tenant and its officers, agents, employees, and customers shall comply with the rules and regulations established by Landlord and with such modifications and additions as Landlord may hereafter make for the Building; provided, however, that rules and regulations shall not materially abrogate any right or privilege expressly granted to Tenant. Any violation of the rules and regulations shall constitute a breach of this lease. (c) The article captions contained in this lease are for convenience only and shall not be considered in the construction or interpretation of any provision. (d) This lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this lease, and no prior agreement or understanding pertaining to any matter shall be effective for any purpose. No provision of this lease may be amended or added to except by an agreement in writing signed by the parties hereto to their respective successors in interest. (e) Submission of this instrument for examination shall not bind Landlord in any manner, and no lease or obligations of Landlord shall arise until this instrument is signed and delivered by Landlord and Tenant. (f) No rights to light or air over any property, whether belonging to Landlord or any other persons, are granted to Tenant by this lease. (g) No waiver by Landlord of any provision of this lease or any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant, whether or not similar to the act so consented to or approved. No act or thing done by Landlord or Landlord's agent during the term of this lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this lease, and the delivery of the keys to any employee shall not operate as a termination of the lease or a surrender of the Premises. (h) FITNESS CENTER. For the term of this Lease, Landlord will grant Tenant three (3) complimentary memberships to Club 44, located in the service level of the Building, to three (3) designated employees of Tenant, subject to the following: 1. Tenant's employees must abide by and obey any and all rules and regulations pertaining to use of the facility. Failure to abide by said rules and regulations will result in loss of membership privileges for the individual concerned, at the sole discretion of the Fitness Center Director or Assistant Director. 2. At its sole and absolute discretion, Landlord may, at any time and without recourse, compensation, or liability, close the fitness center and cease operations. 3. Tenant will provide the Fitness Center Director with written notification of the names of the complimentary members, and said memberships are not transferable without thirty (30) days' written notice. (i) Time is of the essence of this lease. LANDLORD: ADDRESS: DMB PROPERTY VENTURES LIMITED 4201 N. 24th Street, Suite 12D PARTNERSHIP, a Delaware limited Phoenix, Arizona 95016 partnership Phone: 244-0500 Fax: 244-0569 By: DMB G.P., an Arizona corporation By: /s/ James C. Hoselton ------------------------------ James C. Hoselton Its: Vice President TENANT: ADDRESS: NOVELLUS SYSTEMS, INC., a California 3970 North 1st Street corporation San Jose, California 95134 Phone: (408) 943-3413 By: /s/ Peter Hanley Fax: (408) 943-3401 ------------------------------- Peter Hanley Its: Executive Vice President 8 EXHIBIT "A" DESCRIPTION OF REAL PROPERTY Lot 5, PHOENIX GATEWAY AMENDED, according to Book 322 of Maps, Page 18, records of Maricopa County, Arizona. EXHIBIT "B" PREMISES [MAP] 10 EXHIBIT "C" TENANT IMPROVEMENTS (To be mutually agreed upon between Landlord and Tenant. Landlord requires approved plans and specifications no later than December 1, 1995, in order to deliver the Premises on February 1, 1996.rules and regulations shall constitute a breach of this lease. 11 THIRD AMENDMENT TO LEASE THIS THIRD AMENDMENT TO LEASE (hereinafter "Amendment") is made this 3rd day of April, 1989 by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California pursuant to that certain lease dated June 9, 1987, as amended by that certain First Amendment to Lease dated December 1, 1987, and as amended by that certain Second Amendment to Lease dated August 30, 1988 (the lease as amended shall hereinafter be referred to as the "Lease"). B. The Lease provides for a termination date of September 27, 1989. C. Tenant desires to extend the term of the Lease on the terms and conditions set forth herein. D. Landlord agrees to so extend the term in consideration of Tenant's agreement to the terms and conditions set forth below: NOW, THEREFORE, the parties hereto agree to amend the Lease as follows: 1. TERM. The term of the Lease is hereby extended for one (1) year commencing September 28, 1989 and ending September 27, 1990 ("Extended Term"). 2. MONTHLY RENT. Beginning with the first lease month of the Extended Term the monthly rent as set forth in paragraph -1- 4(a) of the Lease, as increased by the Second Amendment to Lease, shall be decreased from Forty-Six Thousand Three Hundred Nine and 65/100 Dollars ($46,309.65) per month to Twenty Thousand Five Hundred Ninety-Six and 80/100 Dollars ($20,596.80) per month. 3. COMMON AREA CHARGES. Subject to adjustments as provided in paragraph 16 of the Lease and as otherwise adjusted prior to the date hereof, Tenant shall continue to pay to Landlord its percentage share of Common Area Charges, as defined in said paragraph 16 of the Lease, during the Extended Term. 4. FIRST MONTH'S RENT FOR EXTENDED TERM. Upon Tenant's execution of this Amendment Tenant shall deposit with Landlord the sum of Ten Thousand Two Hundred Ninety-Eight and 40/100 Dollars ($10,298.40) which amount shall be applied to offset the monthly rent for the first full month of the Extended Term. 5. OPTION TO EXTEND. Tenant's option to extend the term of the Lease, as set forth in paragraph 51 of the Lease, is hereby deleted and of no further force or effect. 6. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions of the Lease shall remain in full force and effect during the Extended Term except as specifically modified herein. IN WITNESS WHEREOF, the parties hereto execute this -2- Amendment on the date set forth below their signature. Landlord: Tenant: CALIFORNIA SECOND, LTD., CIRCADIAN, INCORPORATED a Florida limited partnership a Delaware corporation By: McCandless Partnership, a California general partnership By: /s/ Birk S. McCandless By: /s/ James A. Langley --------------------------- --------------------------- Birk S. McCandless, as (Signature) Trustee under Trust JAMES A. LANGLEY Agreement dated February -------------------------------- 17, 1982, a general (Printed Name) partner VP, Finance -------------------------------- (Title) 4/3/89 3/2/89 ----------------------- -------------------------------- (Date) (Date) -3- MCCANDLESS MANAGEMENT CORPORATION 3945 Freedom Circle, Suite 1000 Santa Clara, CA 95054 September 19, 1990 (408) 980-6500 Fax: (408) 727-5235 Mr. Peter Chang Circadian, Inc. 3942 N. First Street San Jose, California 95134 RE: Commencement and Termination Letter Dear Mr. Chang: The purpose of this letter is to confirm the commencement and termination dates of the Fourth Amendment to Lease dated July 16, 1990, for premises located at 3942 North First Street, San Jose, California. The commencement and termination dates are hereby confirmed as September 28, 1990, and September 27, 1991, respectively. Basic rent in the amount of $16,183.20 and direct expenses of $3,236.64, totalling $19,419.84, shall be due on the first of each month beginning October 1, 1990. Thereafter, the direct expenses shall be adjusted in accordance with the Fourth Amendment to Lease. However, the Basic Rent and Direct Expenses due for September 1990 is $23,392.08, which was prorated in accordance with the decrease effective date, as follows: September 1990 -------------- 9/1 - 27 $20,596.80/30 x 27 days $18,537.12 9/28 - 30 $16,183.20/30 x 3 days 1,618.32 Direct Expenses 3,236.64 ---------- Total Due $23,392.08 Should you require any assistance respecting the building or your occupancy, please feel free to contact me or my assistant, Barbara Eibach. We can help you with any issue related to administration of your Lease as well as with any building or grounds maintenance issues. Mr. Peter Chang September 19, 1990 Page Two Please sign your acknowledgment below and return all three copies to our office. One fully executed original will be returned to you for your files. Sincerely, McCANDLESS MANAGEMENT CORPORATION /s/ Dale Green Dale Green Senior Asset Manager DG/bee Landlord: Tenant: - --------- ------- CALIFORNIA SECOND, LTD., a CIRCADIAN, INC., a Florida limited partnership Delaware corporation BY: McCandless Partnership, a California general partnership, a General Partner BY: /s/ Birk S. McCandless BY: /s/ Peter H. Chang -------------------------- ----------------------- Birk S. McCandless, as Trustee under the Birk S. McCandless and Mary McCandless Inter Vivos Trust Agreement dated February 17, 1982, a General Partner 10/12/90 10/9/90 ------------------------- ------------------------- (Date) (Date) FOURTH AMENDMENT TO LEASE THIS FOURTH AMENDMENT TO LEASE (hereinafter "Amendment") is made this 16th day of July, 1990 by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INCORPORATED, a Delaware corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California pursuant to that certain lease dated June 9, 1987, as amended by that certain First Amendment to Lease dated December 1, 1987, that certain Second Amendment to Lease dated August 30, 1988 and that certain Third Amendment to Lease dated April 3, 1989 (the lease as amended hereinafter be referred to as the "Lease"). B. The Lease provides for a termination date of September 27, 1990. C. Tenant desires to extend the term of the Lease on the terms and conditions set forth herein. D. Landlord agrees to extend the term in consideration of Tenant's agreement to the terms and conditions set forth below: NOW, THEREFORE, the parties hereto agree to amend the Lease as follows: 1. TERM. The term of the Lease is hereby extended for one (1) year commencing September 28, 1990 and ending September 27, 1991 ("Second Extended Term"). 2. MONTHLY RENT. The monthly rent as set forth in paragraph 4(a) of the Lease shall be Sixteen Thousand One Hundred Eighty-Three and 20/100 ($16,183.20) per month during the Second Extended Term. 1 3. COMMON AREA CHARGES. Subject to adjustments as provided in paragraph 16 of the Lease and as otherwise adjusted prior to the date hereof, Tenant shall continue to pay to Landlord its percentage share of Common Area Charges during the Second Extended Term. 4. RESTATEMENT OF OTHER LEASE TERMS. All terms, covenants and conditions of the Lease shall remain in full force and effect except as specifically modified herein. IN WITNESS WHEREOF, the parties hereto execute this Amendment on the date set forth below their signature. Landlord: Tenant: - -------- ------ CALIFORNIA SECOND, LTD., CIRCADIAN, INCORPORATED, a Florida limited partnership a Delaware corporation By: McCandless Partnership, a California general partnership, a General Partner By: /s/ Birk S. McCandless By: /s/ Peter H. Chang ----------------------------- -------------------------- Birk S. McCandless, as (Signature) Trustee under the Birk S. McCandless and Mary PETER H. CHANG McCandless Inter Vivos ----------------------------- Trust Agreement dated (Printed Name) February 17, 1982, a General Partner President & C.E.O. ----------------------------- (Title) 7/20/90 7/16/90 ------------------------- ----------------------------- (Date) (Date) 2 FIFTH AMENDMENT TO LEASE THIS FIFTH AMENDMENT TO LEASE (hereinafter "Amendment") is made this 15th day of August, 1991 by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INC., a Delaware corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California ("Premises") pursuant to that certain lease dated June 9, 1987 ("Original Lease"), as amended by that certain First Amendment to Lease dated December 1, 1987, Second Amendment to Lease dated August 30, 1988, Third Amendment to Lease dated April 3, 1989 and Fourth Amendment to Lease dated July 16, 1990 (the Original Lease as amended shall hereinafter be referred to as the "Lease"). B. The Lease provides for a termination date of September 27, 1991. C. Tenant desires to extend the term of the Lease on the terms and conditions set forth herein. D. Landlord agrees to extend the term in consideration of Tenant's agreement to the terms and conditions set forth below. NOW, THEREFORE, the parties hereto agree to amend the Lease as follows: 1. TERM. The term of the Lease is hereby extended from and after September 28, 1991 through and including December 31, 1993. The period commencing on September 28, 1991 and ending on December 31, 1993 is referred to herein as the "Third Extended Term". 1 2. MONTHLY RENT. The monthly rent as provided in paragraph 4(a) of the Original Lease shall be adjusted and payable during the Third Extended Term as follows: September 28, 1991 through December 31, 1991 $16,183.20 per month January 1, 1992 through December 31, 1992 $17,065.92 per month January 1, 1993 through December 31, 1993 $18,242.88 per month 3. COMMON AREA CHARGES. Subject to adjustments as provided in paragraph 16 of the Original Lease and as otherwise adjusted prior to the date hereof, Tenant shall continue to pay to Landlord its percentage share of Common Area Charges during the Third Extended Term. 4. IMPROVEMENTS. Within thirty (30) days after commencement of the Third Extended Term, Landlord shall, at Landlord's sole cost and expense, shampoo all carpeting located within the Premises and install a dishwasher in the kitchen located within the Premises. Except as provided in this paragraph, Landlord shall have no obligation to alter or improve the Premises. 5. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified herein, all terms, covenants and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto execute this Amendment 2 on the date set forth below their signature. Landlord: Tenant: - -------- ------ CALIFORNIA SECOND, LTD., CIRCADIAN, INC., a Florida limited partnership a Delaware corporation By: McCandless Partnership, a California general partnership, a General Partner By: /s/ Birk S. McCandless By: /s/ David L. Robertson ----------------------------- -------------------------- Birk S. McCandless, as (Signature) Trustee under the Birk S. McCandless and Mary David L. Robertson McCandless Inter Vivos ---------------------------- Trust Agreement dated (Printed Name) February 17, 1982, a General Partner VP of Finance ---------------------------- (Title) 8/15/91 -------------------------------- ---------------------------- (Date) (Date) 3 SIXTH AMENDMENT TO LEASE THIS SIXTH AMENDMENT TO LEASE (hereinafter "Amendment") is made this 3rd day of January, 1994 by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord") and CIRCADIAN, INC., a Delaware corporation ("Tenant"). R E C I T A L S A. Tenant currently leases from Landlord approximately twenty-nine thousand four hundred twenty-four (29,424) square feet of space located at 3942 North First Street, San Jose, California ("Premises") pursuant to that certain lease dated June 9, 1987 ("Original Lease"), as amended by that certain First Amendment to Lease dated December 1, 1987, Second Amendment to Lease dated August 30, 1988, Third Amendment to Lease dated April 3, 1989, Fourth Amendment to Lease dated July 16, 1990 and Fifth Amendment to Lease dated August 15, 1991. The Original Lease as amended shall hereinafter be referred to as the "Lease". B. The Lease provides for a termination date of December 31, 1993. C. Tenant desires to extend the term of the Lease on the terms and conditions set forth herein. D. Landlord agrees to extend the term in consideration of Tenant's agreement to the terms and conditions set forth below. NOW, THEREFORE, the parties hereto agree to amend the Lease as follows: 1. TERM. The term of the Lease is hereby extended from and after January 1, 1994 through and including December 31, 1998. The period commencing on January 1, 1994 and ending on December 31, 1998 is referred to herein as the "Fourth Extended Term". 1 2. MONTHLY RENT. (a) The monthly rent provided for in paragraph 4(a) of the Original Lease shall be adjusted and payable during the Fourth Extended Term as follows: January 1, 1994 through December 31, 1994 $10,800.00 per month January 1, 1995 through December 31, 1995 $14,400.00 per month January 1, 1996 through December 31, 1996 $17,654.40 per month January 1, 1997 through December 31, 1998 Basic rent to be increased according to paragraph 2(b) below. (b) The basic rent provided for in paragraph 2(a) for the period commencing January 1, 1997 through December 31, 1998 shall be adjusted on January 1, 1997 as follows: The Consumer Price Index for All Urban Consumers (base year 1967 = 100) for San Francisco-Oakland-San Jose, Metropolitan Area published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the date nearest the January 1, 1997 ("Extension Index"), shall be compared with the Index published for the date immediately preceding January 1, 1994 ("Beginning Index"). On January 1, 1997, the monthly basic rent payable during the following two year period shall be set by multiplying the basic rent of Seventeen Thousand Six Hundred Fifty-Four and 40/100 Dollars ($17,654.40) per month by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index; provided, however, that in no event shall the increase in basic rent (using $17,654.40 per month as the basic rent amount to be compounded) be less than three percent (3%) per annum compounded from January 1, 1994 or greater than seven percent (7%) per annum compounded from January 1, 1994. As soon as the basic rent for such period is set, Landlord shall given Tenant notice of the amount. In no case shall the basic rent be less than the basic rent for the preceding period. Upon adjustment of the basic rent as provided in this Amendment, the parties shall immediately execute an amendment to the Lease stating 2 the new basic rent. If the Index is changed so that the base year differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 3. COMMON AREA CHARGES. Subject to adjustments as provided in paragraph 16 of the Original Lease and as otherwise adjusted prior to the date hereof, Tenant shall continue to pay to Landlord its percentage share of Common Area Charges during the Fourth Extended Term. 4. IMPROVEMENTS. Improvements to the Premises shall be constructed and installed in accordance with the plans and specifications, and other terms and conditions, set forth in Exhibit A to this Agreement, the contents of which is incorporated herein and made a part hereof by this reference. The improvements shall be constructed and installed at the expense of Landlord and/or Tenant as set forth in Exhibit A to this Amendment and in each case shall be performed in a diligent and workmanlike manner. 5. SECURITY DEPOSIT. (a) Concurrently with Tenant's execution of this Amendment, Tenant shall deliver to Landlord an unconditional and irrevocable Letter of Credit in the amount of One Hundred Thousand and 00/100 Dollars ($100,000.00) to secure the faithful performance by Tenant of all of the terms, covenants and conditions of this Amendment to be kept and performed by Tenant. Notwithstanding the actual amount of the Letter of Credit, the maximum amount which Landlord may demand shall not exceed an amount equal to One Hundred Thousand and 00/100 Dollars ($100,000.00) less the sum of Two Thousand Seven Hundred Seventy-Seven and 77/100 Dollars ($2,777.77) per month during the first three (3) years of the Fourth Extended Term. The Letter of Credit (to the extent limited by the preceding sentence) shall be available by draft at sight, subject only to receipt by the bank of a notarized statement from Birk S. McCandless or Steven E. Sund stating that the amount demanded is due and owing to Landlord. The Letter of Credit shall by its terms expire not less than one year from the date issued, provided that unless Tenant deposits with Landlord a cash security deposit of like amount, said Letter of Credit shall be renewed by Tenant for successive periods of not less than one year each to and including 3 December 31, 1996 in the amounts specified below for each of the first three (3) years of the Fourth Extended Term as follows: January 1, 1994 through December 31, 1994 $100,000.00 January 1, 1995 through December 31, 1995 $66,667.00 January 1, 1996 through December 1, 1996 $33,334.00 January 1, 1997 through End of Fourth Extended Term Not required The bank's written renewal of the Letter of Credit shall in each case be delivered to Landlord not less than ninety (90) days prior to the expiration date of the then outstanding Letter of Credit. Tenant's failure to so deliver, renew (including, but not limited to, the delivery to Landlord of such renewal not less than ninety (90) days prior to expiration of the Letter of Credit) and maintain such Letter of Credit shall be a material breach of this Amendment. If Tenant defaults in the performance of any provision of this Amendment to be performed by Tenant, including without limitation the payment of rent and other amounts due Landlord, and such default is not cured within the cure period set forth in the Lease, Landlord may immediately and without further notice resort to said Letter of Credit and use or apply all or any part of same to compensate Landlord for any loss or expense occasioned thereby and for the payment of any amount due Landlord under the terms of this Amendment. If any portion of said Letter of Credit is so used as specified above, Tenant shall, within ten (10) days after written demand therefor, restore the Letter of Credit to its original amount, and Tenant's failure to do so shall be a material breach of this Amendment and the Lease. Landlord's resort to said Letter of Credit shall in no way or manner constitute an acceptance of or waiver of such default by Tenant; nor shall resort to said Letter of Credit terminate, or permit Tenant to terminate, or constitute a forfeiture of, or be construed as an election by Landlord to terminate, the Lease; nor shall such resort affect Landlord's remedies otherwise available under the Lease or at law. (b) In addition, concurrently with Tenant's execution of this Amendment, Tenant shall deposit with Landlord the sum of 4 Seventeen Thousand Six Hundred Fifty-Four and 40/100 Dollars ($17,654.40), which sum shall be held by Landlord as Tenant's security deposit pursuant to paragraph 4(d) of the Original Lease. Tenant hereby acknowledges that any amounts previously deposited with Landlord as a security deposit pursuant to the Lease have previously been applied by Landlord to Tenant's prior obligations under the Lease and that the entire amount of the security deposit held by Landlord as a security deposit, upon receipt of the above amount, is Seventeen Thousand Six Hundred Fifty-Four and 40/100 Dollars ($17,654.40). Landlord hereby acknowledges that Tenant has performed all of its obligations (including, but not limited to the payment of the settlement payment) under that certain Settlement Agreement and Agreement for Mutual Release Between Landlord and Tenant dated September 9, 1992. 6. INSURANCE. Landlord's obligation to obtain and keep in force certain insurance policies, as specified in paragraph 11 of the Original Lease, is hereby modified to provide that Landlord may, but shall not be obligated to, obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of such insurance shall be a Common Area Charge as provided in paragraph 11. 7. ALTERATIONS. Paragraph 8 of the Lease is hereby modified to provide that with respect to any alteration which Tenant is required by Landlord to remove at the end of the lease term, in addition to removing the alteration and repairing any damage to the Premises caused by such removal and complying with the surrender provisions in paragraph 23 of the Original Lease, Tenant shall also be obligated to restore the Premises to their condition as it existed prior to Tenant making such alteration. Landlord acknowledges that none of the improvements existing in the Premises as of the date hereof, and none of the improvements to be constructed by Landlord pursuant to the Work Letter Agreement attached hereto and incorporated herein are required to be removed by Tenant at the end of the Lease term. 8. ENVIRONMENTAL MATTERS A. TENANT's COVENANTS REGARDING HAZARDOUS MATERIALS. (1) HAZARDOUS MATERIALS HANDLING. Tenant, its agents, invitees, employees, contractors, sublessees, assigns and/or successors shall not use, store, dispose, release or otherwise cause to be present Hazardous Materials (as defined 5 below) on or about the Premises or Project other than those Hazardous Materials in the amounts set forth on Exhibit B attached hereto and incorporated herein, and other than reasonable amounts of customary office products and cleaners. As used herein "Hazardous Materials" shall mean any petroleum or petroleum by-products, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any "hazardous substance", "hazardous waste", haxardous materials", "toxic substance" or "toxic waste" as those terms are defined under the provisions of the California Health and Safety Code and/or the provisions of the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), or any other hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or any agency thereof, or the United States Government or any agency thereof. (2) NOTICES. Tenant shall immediately notify Landlord in writing of: (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any law, regulation or ordinance relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials (collectively "Hazardous Materials Laws"); (ii) any claim made or threatened by any person against Tenant, the Premises, Project or buildings within the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises, Project or buildings within the Project, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, with copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, Project or buildings within the Project or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting in the legal and proper disposal of all Hazardous Materials removed from the Premises. B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend (by counsel acceptable to Landlord), protect, and hold Landlord, and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for death of or 6 injury to any person or damage to any property whatsoever (including water tables and atmosphere), arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under or about the Premises, Project or buildings within the Project or discharge in or from the Premises, Project or buildings within the Project of any Hazardous Materials arising from or caused by Tenant's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, Project or buildings within the Project, or (ii) Tenant's failure to comply with any Hazardous Materials Laws whether knowingly, unknowingly, intentionally or unintentionally. Tenant's obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repair, cleanup or detoxification or decontamination of the Premises, Project or buildings within the Project, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith. In addition, Tenant shall reimburse Landlord for (i) losses in or reductions to rental income resulting from Tenant's use, storage or disposal of Hazardous Materials, (ii) all costs of refitting or other alterations to the Premises, Project or buildings within the Project required as a result of Tenant's use, storage, or disposal of Hazardous Materials including, without limitation, alterations required to accommodate an alternate use of the Premises, Project or buildings within the Project, and (iii) any diminution in the fair market value of the Premises, Project or buildings within the Project caused by Tenant's use, storage, or disposal of Hazardous Materials. For purposes of this paragraph 8, any acts or omissions of Tenant, or by employees, agents, assignees, contractors or subcontractors of Tenant or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Tenant. Landlord shall indemnify, defend, (with counsel reasonably acceptable to Tenant), protect, and hold Tenant, its employees, agents, attorneys, stockholders, officers, directors, successors and assigns free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) for the death of or injury to any person or damage to any property whatsoever (including water tables and atmosphere) directly arising out of or in connection with Landlord's use, analysis, storage, transportation, disposal, release, threatened release, discharge or generation of Hazardous Materials in, on, under or about the Premises or Project, or the violation by Landlord of any Hazardous Materials Law relating to any such Hazardous Material. C. SURVIVAL. The provisions of this paragraph 8 shall survive the expiration or earlier termination of the term of the 7 Lease. 9. REAL ESTATE BROKERS. Each party represents and warrants to the other party that it has not had dealings in any manner with any real estate broker, finder or other person with respect to the Premises and the negotiation and execution of this Amendment except Tarlton Properties. Except as to commissions and fees to be paid as provided in this paragraph, each party shall indemnify and hold harmless the other party from all damage, loss, liability and expense (including attorneys' fees and related costs) arising out of or resulting from any claims for commissions or fees that may or have been asserted against the other party by any broker, finder or other person with whom Tenant or Landlord has or purportedly has dealt with in connection with the Premises and the negotiation and execution of this Amendment. Landlord shall pay to Tarlton Properties a commission equal to fifty percent (50%) of Landlord's standard commission in connection with this transaction. Landlord and Tenant agree that Landlord shall not be obligated to pay any broker leasing omissions, consulting fees, finder fees or any other fees or commissions arising out of or relating to any extended term beyond the Fourth Extended Term or to any expansion or relocation of the Premises at any time. 10. LANDLORD'S ADDRESS. Landlord's address for notice purposes, as provided in paragraph 39 of the Lease, is hereby changed to: 3945 Freedom Circle, Suite 640 Santa Clara, California 95054 11. USE. The use provision set forth in paragraph 1 of the Lease is hereby modified to allow Tenant to also use the Premises for the operating of an Asthma Therapy Management Center and a dispensing mail order pharmacy; subject to Tenant's compliance with all laws related thereto, including zoning ordinances, and such uses shall not be permitted if such uses would violate any governmental or quasi-governmental law, ordinance, rule or regulation. Landlord makes no representation or warranty regarding the legality or permissibility of such uses. In addition, any increases in insurance costs on the Project which are due to Tenant's use of the Premises shall be paid entirely by Tenant. 12. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified herein, all terms, covenants and conditions of the Lease shall remain in full force and effect. 8 IN WITNESS WHEREOF, the parties hereto execute this Amendment on the date set forth below their signature. Landlord: Tenant: - -------- ------ CALIFORNIA SECOND, LTD., CIRCADIAN, INC., a Florida limited partnership a Delaware corporation By: McCandless Partnership, a California general partnership, a General Partner By: /s/ Birk S. McCandless By: /s/ Arthur A. Bertolero ----------------------------- -------------------------- Birk S. McCandless, as (Signature) Trustee under the Birk S. McCandless and Mary Arthur A. Bertolero McCandless Inter Vivos ------------------------------- Trust Agreement dated (Printed Name) February 17, 1982, a General Partner President ------------------------------- (Title) 1/7/94 -------------------------------- ------------------------------- (Date) (Date) 9 WORK LETTER AGREEMENT EXISTING SPACE - ALLOWANCE CONSTRUCTION Exhibit A - ------------------------------------------------------------------------------- THIS WORK LETTER AGREEMENT (hereinafter "Exhibit A") is attached to and forms a part of that certain Sixth Amendment to Lease ("Amendment") amending that certain lease ("Lease") by and between CALIFORNIA SECOND, LTD., a Florida limited partnership ("Landlord"), and CIRCADIAN, INC., a Delaware corporation ("Tenant"), pursuant to which Landlord leases to Tenant those certain premises located at 3942 North First Street, San Jose, California and consisting of approximately twenty nine thousand four hundred twenty-four (29,424) square feet ("Premises"). All capitalized terms used herein shall have the meaning ascribed to them in the Amendment to which this Exhibit A is made a part thereof unless otherwise defined below. The Premises shall be improved in accordance with the following: 1. EXISTING IMPROVEMENTS: Tenant accepts the Premises in its existing condition and the improvements constructed therewith, and Tenant hereby approves the same as installed, subject only to such changes as may subsequently be agreed upon by Landlord and Tenant. Such improvements are hereafter called "Existing Improvements". 2. TENANT IMPROVEMENTS: As used herein, "Tenant Improvements" shall include those items and specifications shown on the Final Construction Drawings prepared in accordance with paragraph 3 below, including those specifications (as appropriate) set forth and described in Exhibit A-1, attached hereto, exclusive of Existing Improvements. Landlord shall construct Tenant Improvements in accordance with the Fional Construction Drawings, Exhibit A-1 and the provisions of this Exhibit A. Unless otherwise specifically agreed to by Landlord in writing, the installation, wiring, maintenance and removal of furniture partition systems, telephone and other communication systems, data cabling, alarm and/or security systems and any other systems not specifically set forth in the Final Construction Drawings or Exhibit A-1, and all cost and expense associated therewith, shall be the sole responsibility of Tenant. In connection with the construction and installation of the Tenant Improvements, Landlord or Landlord's general contractor shall have no obligation to move any of Tenant's property located in or about the Premises including, but not limited to, furniture, inventory 1 and trade fixtures, at the time of such construction and installation. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the Premises that unreasonably inhibits or prevents the construction and installation of the Tenant Improvements, Tenant shall within one (1) business day after receipt of notification therefore from Landlord or Landlord's general contractor, at Tenant's sole cost and expense, move such property to another location within the Premises, or upon receipt of Landlord's prior approval, to another location within the Project designated by Landlord in Landlord's sole discretion; Tenant's failure to move such property within one (1) business day after receipt of notification therefore from Landlord or Landlord's general contractor shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit A. If at the time of construction and installation of the Tenant Improvements Tenant has property located in or about the portion of the Premises where the construction is occurring from time to time, Landlord and Landlord's general contractor shall incur no liability to Tenant or any other party in the event such property is damaged, destroyed or stolen during the construction and installation of the Tenant Improvements. 3. TENANT IMPROVEMENT DESIGN SCHEDULE: The plans and specifications for the Tenant Improvements shall be completed in accordance with the following: (a) Tenant shall approve preliminary floor plan layouts ("Preliminary Floor Plans") prepared by Landlord by December 20, 1993. The Preliminary Floor Plans shall show all walls, doors, and other Tenant Improvements desired by Tenant in sufficient detail for Landlord's architect to prepare architectural construction drawings and related documents ("Architectural Construction Documents"). (b) Between December 15 and December 20, Landlord's architect and Tenant's representative shall meet as needed to review and complete the final details related to the Preliminary Floor Plans, so that on December 20, 1993 the Architectural Construction Documents are subject only to minor changes. (c) No later than December 20, 1993, Tenant shall have made the decisions required and supplied to Landlord the information requested by Landlord and necessary for Landlord's architect to complete the Architectural Construction Documents in enough detail for Landlord's general contractor to bid the work, select subcontractors and to proceed toward the design of electrical, mechanical and any other requirements not included on the Architectural Construction Documents. Upon Landlord's general contractor's selection of subcontractors, Landlord's general 2 contractor and subcontractors shall prepare design specifications outlining in reasonable detail electrical, mechanical and any other requirements not included on the Architectural Construction Documents ("Electrical and Mechanical Drawings"). (d) Upon completion of the Architectural Construction Documents, Tenant shall have one (1) day to approve the same or notify Landlord of any final changes which are required, subject to changes, deletions or additions as provided in paragraphs 6 and 7 of this Exhibit A. (e) Upon completion of the Electrical and Mechanical Drawings, Landlord or Landlord's general contractor shall submit the Architectural Construction Documents and Electrical and Mechanical Drawings (collectively the "City Ready Plans") to the City to obtain a building permit. (f) Tenant shall have decided upon carpet selection and all other color and material specifications by November 19, 1993. (g) As used herein, "Final Construction Drawings" shall include the City Ready Plans, as approved by the City, and any subsequent additions, deletions or changes to the Tenant Improvements permitted or required pursuant to paragraphs 6 and 7 of this Exhibit A. 4. TENANT IMPROVEMENT COST ESTIMATES: Within fourteen (14) days of completion of the Electrical and Mechanical Drawings, Landlord shall prepare and deliver to Tenant an improvement cost budget ("Improvement Cost Budget") setting forth the Total Cost of Tenant's Improvements (as defined in paragraph 5(b) below). Within three (3) days after Tenant's receipt of the Improvement Cost Budget, Tenant shall, in writing, approve or disapprove the Improvement Cost Budget. If Tenant does not deliver to Landlord its written approval or disapproval within the three (3) day period, Tenant will be deemed to have approved the Improvement Cost Budget. If Tenant disapproves the Improvement Cost Budget, Landlord and Tenant shall, within three (3) days of Tenant's disapproval, attempt to agree on mutually acceptable modifications to the Improvement Cost Budget. If Tenant disapproves of the Improvement Cost Budget and Landlord and Tenant are unable, within the three (3) day period, to agree on mutually acceptable changes to the Improvement Cost Budget, or if Tenant approves of the Improvement Cost Budget but does not deliver to Landlord, within three (3) days of its approval, signed copies of the Improvement Cost Budget and Architectural Construction Documents, then Landlord may terminate the Amendment upon written notice to Tenant. Upon Tenant's written approval of the Improvement Cost Budget (or in the event Tenant is deemed to have approved the Improvement Cost Budget as provided hereinabove), the 3 Total Cost of Tenant's Improvements set forth therein shall be deemed a fixed price for the Tenant Improvements (said fixed price shall be referred to herein as the "Tenant Improvement Fixed Cost"). The Tenant Improvement Fixed Cost shall be subject to adjustment for increases in costs resulting from changes to the Tenant Improvements requested or required pursuant to paragraphs 6 and 7 of this Exhibit A. Landlord shall not be obligated to commence construction of the Tenant Improvements until the following has occurred: the Architectural Construction Documents and Tenant Improvement Fixed Cost have been agreed to by Landlord and Tenant; Tenant has indicated its approval of the Architectural Construction Documents and Improvement Cost Budget by signing copies thereof; and Landlord has executed a written authorization to proceed with construction with Landlord's general contractor based on the agreed Architectural Construction Documents and Tenant Improvement Fixed Cost. 5. TENANT IMPROVEMENT ALLOWANCE: (a) Landlord agrees to grant to Tenant a Tenant Improvement Allowance ("Allowance") of $88,272.00 ($3.00/SF x 29,424 SF) to be applied toward the "Total Cost of Tenant's Improvements" (as defined below) to be installed in accordance with this Exhibit A. (b) As used herein, "Total Cost of Tenant's Improvements" shall include: (i) the cost of Tenant Improvements and increases therein pursuant to paragraphs 6 and 7 below, if any, and all demolition costs incurred in connection with preparing the Premises the installation of the Tenant Improvements; (ii) the cost of overtime or special expenditures, provided such overtime or special expenditures are approved in advance by Tenant in writing (which Tenant shall approve or disapprove within one (1) day of receipt of Landlord's notice regarding same); (iii) all costs related to change orders; (iv) all costs related to changes required or requested by governmental authority; (v) permit fees and other fees not previously paid by Landlord as part of shell costs; (vi) the cost of consultants and engineers; (vii) an amount equal to the actual cost of supervision, administration and on-site facilities and equipment necessary to perform the work; (viii) an amount equal to 9% of the sum of items (i) through (vii) above as and for the general contractor's overhead and profit; and (ix) the cost of architects hired by Landlord. (c) In the event that the Tenant Improvement Fixed Cost exceeds the Allowance (the amount by which the Tenant Improvement Fixed Cost exceeds the Allowance shall be referred to herein as the "Excess Cost"), Tenant shall pay twenty-five percent (25%) of such Excess Cost to Landlord within five (5) days of Tenant's approval of the Improvement Cost Budget, twenty-five percent (25%) thereof within five (5) days of when Landlord notifies Tenant that the 4 Tenant Improvements are twenty-five percent (25%) complete, another twenty-five percent (25%) when Landlord notifies Tenant that the Tenant Improvements are fifty percent (50%) complete, another fifteen percent (15%) when Landlord notifies Tenant that the Tenant Improvements are seventy-five percent (75%) complete and the final ten percent (10%) when the Tenant Improvements have been completed. Tenant's failure to make any payment of the Excess Cost when due, or to make any payment with respect to change orders as set forth in paragraph 6 of this Exhibit A, shall be deemed a default under the Lease and the amount so delinquent shall be deemed additional rent and Landlord may exercise all rights and remedies set forth in the Lease; and in addition, Landlord may delay construction until such payment is made and such delay shall be deemed a Tenant caused delay subject to the provisions of paragraph 8 of this Exhibit A. (d) In the event Tenant causes delays, or requests changes which cause delays in construction of more than ninety (90) calendar days, then Landlord shall not be obligated to grant to Tenant the Allowance, or any balance remaining unused therein. In such case, Tenant shall be responsible for all additional costs resulting therefrom, including any increase in labor and materials costs. Tenant shall be entitled to no rent reduction or credit at any time in the event that the Allowance or any portion thereof remains unused for any reason whatsoever. 6. CHANGES BY TENANT: Tenant may request changes, deletions or additions to the Tenant Improvements; provided, however, that the effectiveness of any such requested change, deletion or addition shall be subject to written approval by an authorized representative of Landlord and to obtaining any required governmental permits or other approvals. If any such change, deletion or addition increases the Tenant Improvement Fixed Cost above the Allowance, Tenant shall immediately pay to Landlord the full amount of such increase in excess of the Allowance. n no event shall work on any change, deletion or addition requested pursuant to this paragraph 6 commence prior to (i) Landlord and Tenant approving, in writing, such change, deletion or addition, and (ii) Landlord's receipt from Tenant of payment of the full amount of the increase of the Tenant Improvement Fixed Cost in excess of the Allowance. 7. CHANGES BY AUTHORITY: Tenant agrees that if any change, deletion or addition to any of the improvements proposed to be constructed or installed is required by any governmental authority in connection with obtaining any governmental permit or approval, or otherwise, then such change, deletion or addition shall promptly be made and the Tenant Improvement Fixed Cost shall be adjusted to reflect any increase in cost resulting from such required change. To the extent any 5 cost resulting from such required change. To the extent any change, deletion or addition required by any governmental authority in connection with obtaining any governmental permit or approval increases the Tenant Improvement Fixed Cost above the Allowance, Tenant shall pay to Landlord such increase above the Allowance in accordance with the provisions of paragraph 5(c) of this Exhibit A. The Tenant Improvements shall be constructed in accordance with all laws. 8. DELAYS CAUSED BY TENANT: Any delays due to construction delays related to any changes required by Tenant, or due to any other failures by Tenant to perform its obligations under this Exhibit A or otherwise under the Lease or the Amendment, shall be deemed Tenant caused delays for purposes of this Agreement. 9. PUNCH LIST: Within ten (10) business days after the Effective Date, Tenant shall deliver to Landlord a list of items ("Punch List") that Tenant believes Landlord should complete or correct in order for the Premises to be acceptable. Landlord shall commence to complete or correct the items as soon as possible, except those items that Landlord in its reasonable discretion contends are not justified. If Tenant does not deliver the Punch List to Landlord within the ten (10) day period, Tenant shall be deemed to have accepted the Premises and approved the construction (provided that such acceptance shall not be deemed a waiver with respect to structural defects, non-compliance with laws or other items not reasonably ascertainable on walkthrough inspection). Nothing in this paragraph 9 shall delay the Effective Date or Tenant's obligation to pay rent or to make other payments due Landlord under the Lease or the Amendment. 10. ACCESS TO PREMISES: Tenant shall permit Landlord and Landlord's contractor access to the Premises during normal business hours for construction of the Tenant Improvements. Tenant acknowledges that some disruption of its business operations is inevitable and that such disruption shall not be a basis for denying Landlord's contractor access to the Premises or otherwise interfering with construction of the Tenant Improvements. Landlord and its contractors shall use reasonable efforts to minimize disruption to Tenant's business. In the event Tenant elects to have construction of the Tenant Improvements, or any portion thereof, performed at times other than during normal business hours, Landlord shall provide Tenant with an estimate of overtime charges before commencement of such work. Tenant shall be responsible for all actual overtime charges and shall pay to Landlord as additional 6 rent within ten (10) days of completion of construction of the Tenant Improvements all such actual overtime charges. 11. ATTACHMENTS: All reference in the Amendment to Exhibit A shall be deemed to also include Exhibit A-1. 7 EXHIBIT A SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT made this 28th day of February, 1995 by and among THE TRAVELERS INSURANCE COMPANY, a Connecticut corporation, with an office at 2121 N. California Blvd., Walnut Creek, California 94596-8161 (the "Mortgagee"), and Circadian, Inc., a Delaware corporation, with an address at 3942 North First Street, San Jose, California 95134 (the "Tenant"), and California Second, Ltd., a Florida Limited Partnership, whose address is c/o McCandless Management Company, 3945 Freedom Circle, Suite 640, Santa Clara, California 95054 (the "Borrower"). WITNESSETH: WHEREAS, the Mortgagee is the holder of an Amended and Restated Deed of Trust and Security Agreement with Assignment of Rents and Leases and Fixtures Filing from Borrower dated as of November 1, 1994 (the "Mortgage") covering certain improved real property located in the County of Santa Clara, State of California, and described on Exhibit A attached hereto, and recorded on December 1, 1994, as Serial No. 12736117, Santa Clara County Records (the real property covered by the Mortgage as described in Exhibit A is hereafter referred to as the "Mortgaged Property"); and WHEREAS, by virtue of that certain lease ("Lease") dated June 9, 1987, as amended by that certain First Amendment to Lease dated December 1, 1987, Second Amendment to Lease dated August 30, 1980, Third Amendment to Lease dated April 3, 1989, Fourth Amendment to Lease dated July 16, 1990, Fifth Amendment to Lease dated August 15, 1991, and Sixth Amendment to Lease dated January 3, 1994 (collectively, the "Lease"), between the Borrower, as Landlord therein, and the Tenant, as Tenant therein, the Tenant has leased from the Borrower approximately 29,424 rentable square feet of space located in an office building at 3942 North First Street, San Jose, California (the "Premises"), which Premises are a portion of the Mortgaged Property; WHEREAS, the Tenant desires to be assured of continued occupancy of the Premises under the terms of the Lease and subject to the terms of the Mortgage; NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) by each party in hand paid to the other, receipt of which is hereby acknowledged, and in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereto, intending to be legally bound hereby, hereby agree as follows: 1. The Tenant hereby agrees: (a) subject to this Agreement, the Lease and the Tenant's leasehold estate and any and all estates, options, liens and charges therein contained or created thereby are, and shall be and remain, subject and subordinate in all respects to the lien and effects of the Mortgage and to all of the terms, conditions and provisions thereof, to all advances made or to be made thereunder, and to any renewals, extensions, modifications, consolidations or replacements thereof, with the same force and effect as if the Mortgage had been executed, delivered and duly recorded at the above-mentioned Recorder, prior to the execution and delivery of the Lease; (b) from time to time, upon request by the Mortgagee, it shall forthwith provide the Mortgagee within ten days of such request with an estoppel certificate certifying that no defaults, claims, offsets or events, or situations which, with the passage of time, could become a default or the basis for a claim or offset against the Borrower by the Tenant, exist under the Lease or, if the same exist, certifying and describing such items as are in existence; (c) it will forward to the Mortgagee copies of any notice, claim or demand given or made by the Tenant to or on the Borrower, in all cases concurrently with forwarding same to the Borrower, such copies to be provided to the Mortgagee by the same method of mailing as the statement, notice, claim or demand was made or given to or on the Borrower; (d) without the prior written consent of the Mortgagee (i) no rent or other sums due under the Lease shall be paid more than thirty (30) days in advance of the due date therefor established by the Lease, except the security deposit, if any, (ii) no modifications shall be made in the provisions of the Lease nor shall the term be extended or renewed, except as provided therein, (iii) the Lease shall not be terminated by the Tenant except as provided therein nor shall the Tenant tender or accept a surrender of the Lease except incident to a termination provided for in said Lease, and (iv) it shall only subject the Premises demised by the Lease or assign the Tenant's interest in the Lease in accordance with the provisions of said Lease; (e) in the event of any act or omission by the Borrower which would given the Tenant the right to terminate the Lease or to claim a partial or total eviction, reduce rents or to credit or offset any amounts against future rents, the Tenant will not exercise such right (i) until it shall have given written notice of such act or omission to the Mortgagee, and (ii) until a reasonable time for remedying such act or omission shall have elapsed following such giving of notice, Mortgagee's time to commence and diligently pursue cure thereof not to exceed 2 the later of 30 days after (A) Tenant's notice to Mortgagee as provided in this subparagraph and (B) the lapse of the applicable cure period under the Lease; and if it so elects, the Mortgagee shall have the right to cure any default by the Borrower under the Lease, including, if necessary to cure such defaults, access to the premises demised by the Lease in accordance with the terms of the Lease; (f) notices required to be given to the Mortgagee under this Agreement will be given to any successor-in-interest of the Mortgagee under the Mortgage provided that, prior to the event for which notice is required to be given to the Mortgagee, such successor-in-interest of the Mortgagee shall have given written notice to the Tenant of its acquisition of the Mortgagee's interest therein, and designated the address to which such notice is to be directed; (g) if the holder of the Mortgage (as now or hereafter constituted), or anyone claiming from or through any such holder, shall enter into and lawfully become possessed of the Mortgaged Property or the Premises, or shall succeed to the rights of the Borrower under the Lease, or shall succeed to the rights of the Borrower under the Lease, either through foreclosure of said Mortgage or otherwise howsoever, (i) the Tenant shall attorn to, and recognize, such holder or anyone claiming from or through such holder as its landlord under the Lease for the unexpired balance of the term of the Lease and any extension or renewal thereof, subject to all of the terms and conditions of the Lease, and (ii) the Tenant shall make all payments payable by the Tenant under the Lease directly to the holder of the Mortgage upon such holder's written instructions to the Tenant; and if, by operation of law, or otherwise, the institution of any action or other proceedings by the Mortgagee under the Mortgage or the entry into and taking possession of the Premises shall result in the cancellation or termination of the Lease or the Tenant's obligations thereunder, the Tenant shall, upon request, execute and deliver a new lease of the Premises pursuant to the Lease, containing the same terms and conditions as the Lease, except that the term and any extension thereof shall be the unexpired term and unexpired extended term or terms of the Lease as of the date of execution and delivery of said new lease; (h) it has no right or option, whether under the Lease or otherwise, to purchase any portion of the Mortgaged Property or any interest therein, and to the extent that Tenant has or hereafter acquires any such right or option, the same is hereby subordinated to the Mortgage; (i) the Mortgagee shall have no responsibility, liability or obligation to cure any defaults by the Borrower under the Lease, nor be subject to claims, defenses or offsets under the Lease or against the Borrower possessed by the Tenant 3 and which arose or existed prior to actual foreclosure of the Mortgage or recording of a deed in lieu of foreclosure or entry under and taking possession of the Mortgaged Property by the Mortgagee. If the Mortgagee forecloses the Mortgage or takes title to the Mortgaged Property pursuant to a deed in lieu of foreclosure or enters upon and takes actual possession of the Mortgaged Property, the Mortgagee or any other purchaser at such foreclosure sale shall do so free and clear of all such prior defaults, claims, or offsets and shall not be liable or responsible to the Tenant for any act or omission of any prior landlord (including the Borrower), or be responsible or liable for any deposit or security which was delivered by the Tenant to any prior landlord (including the Borrower) but which was not subsequently delivered to the Mortgagee, or be obligated or liable to the Tenant with respect to the construction and completion of any improvements in the Premises for the Tenant's use, enjoyment or occupancy, or be bound by any restriction on competition beyond the Premises contained in the Lease, or be subject to any claims, defenses or offsets which the Tenant might have against any prior landlord (including the Borrower); and (j) the institution of any action or other proceedings by the Mortgagee under the Mortgage in order to realize upon the Borrower's interest in the Mortgaged Property shall not by operation of law, or otherwise, result in the cancellation or termination of the Lease or the Tenant's obligations thereunder. 2. The Mortgagee hereby agrees: (a) so long as the Tenant is not in default (beyond all applicable periods given the Tenant under the Lease to cure such default) and shall pay the rents and additional rents thereunder, and shall fully comply with and perform all the terms, covenants, conditions and provisions of the Lease on the part of the Tenant thereunder to be complied with and performed, (i) the Tenant's possession and occupancy of the Premises and the Tenant's rights and privileges under the Lease, or any extension or renewal thereof which may be effected in accordance with the terms of the Lease, shall not be disturbed by the Mortgagee or any successor-in-interest to the Mortgagee; (ii) the Mortgagee shall not join the Tenant as party to any action or proceeding brought as a result of a default under the Mortgage for the purposes of terminating the Tenant's interest and estate under the Lease, subject to paragraph 1(g) above and subject further to the condition that the Mortgagee shall not be bound by any rent or other payment which the Tenant might have paid more than thirty (30) days in advance of the time stipulated for payment 4 under the Lease or by any amendment or modification of the Lease made without its written consent; and (b) in the event that the interest of the Borrower shall vest in the Mortgagee by reason of foreclosure or any other procedures brought by it, or in any other manner, the Mortgagee and its successors-in-interest agree to be bound by all of the undischarged obligations of Landlord under the Lease occurring after such foreclosure or other action. 3. The Tenant hereby represents and warrants that: (a) the Lease is in full force and effect; (b) to the Tenant's actual knowledge, neither the Landlord nor the Tenant is in default in the performance of or compliance with any provision of the Lease; (c) the Tenant has not received any notice of default or termination of the Lease; (d) the Lease is a complete statement of the agreement of the parties thereto with respect to the leasing of the Premises; and (e) the Tenant has accepted possession of the Premises and is the sole owner of the leasehold estate created thereby. 4. The Borrower hereby irrevocably authorizes and directs the Tenant and the Tenant hereby agrees, upon receipt from the Mortgagee of written notice to do so, to pay all rents and other monies payable by the Tenant under the Lease to or at the direction of the Mortgagee. The Borrower irrevocably releases the Tenant of any liability to the Borrower for all payments so made, and the Borrower agrees to defend, indemnify and hold the Tenant harmless from and against any and all claims, demands, losses, or liabilities asserted by, through, or under the Borrower for any and all payments so made. The Tenant agrees that upon receipt of such notice it will pay all monies then due and becoming due from the Tenant under the Lease to or at the direction of the Mortgagee, notwithstanding any provision of the Lease to the contrary. Such payments shall continue until the Mortgagee directs the Tenant otherwise in writing. The Tenant agrees that neither the Mortgagee's demanding or receiving any such payments, nor the Mortgagee's exercising any other right, remedy privilege, power or immunity granted by the Lease or this Agreement will operate to impose any liability upon the Mortgagee for performance of any obligation of the Mortgagee under the Lease unless and until the Mortgagee elects otherwise in writing or unless the Mortgagee takes possession of the Premises and assumes the functions of a landlord. 5 5. Any notice, demand or consent hereunder shall be in writing and may be given or mailed by mailing the same by registered or certified mail, return receipt requested, addressed, or intended for the Mortgagee, to the Mortgagee at the address set forth on the first part of this Agreement, and if intended for the Tenant, addressed to the Tenant at the address also set forth on the first page of this Agreement with a copy to the Premises, and if intended for the Borrower, addressed to the Borrower at the address also set forth on the first page of this Agreement. Either party may designate a new address by notice in writing to the other party. Any notice given in accordance herewith shall be effective upon deposit in the United States mails in accordance herewith. 6. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. The term "Mortgagee" shall include the respective holders from time to time of the Mortgage (as now or hereafter constituted), the term "Borrower" shall be synonymous with the term "Landlord" during the term of the Mortgage and the terms "Landlord" and "Tenant" shall include the holder from time to time of the lessor's interest, and the holder from time to time of the lessee's interest, respectively, in the Lease. 7. Any claim by the Tenant against the Mortgagee under the Lease or this Agreement shall be satisfied solely out of the interest of the Mortgagee in the Mortgaged Property and the Tenant shall not seek recovery against or out of any other assets of the Mortgagee. This Agreement shall be governed by, and construed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused the execution hereof as a sealed instrument as of the day and year first above written. TENANT: CIRCADIAN, INC., a Delaware corporation By: /s/ Margie Kankrlik -------------------------- Its: Secretary ------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] 6 MORTGAGEE: THE TRAVELERS INSURANCE COMPANY, a Connecticut corporation By: /s/ Lona G. Andrey ------------------------ Its: Assistant Secretary ----------------------- LANDLORD/BORROWER: CALIFORNIA SECOND LTD., A Florida limited partnership By: /s/ Birk S. McCandless --------------------------- Birk S. McCandless, As Trustee of the Birk S. McCandless and Mary McCandless Inter Vivos Trust dated February 17, 1982, General Partner 7 ACKNOWLEDGMENT OF INSTRUMENTS STATE OF CALIFORNIA ) ) SS. COUNTY OF SANTA CLARA ) On March 29, 1995 before me, the undersigned notary public in and for said state, personally appeared Margie Kankrlik, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Naomi B. Kuhn --------------------- (Seal) Naomi B. Kuhn Comm. #986138 Notary Public - California SANTA CLARA COUNTY My Comm. Expires APR 9, 1997 8 ACKNOWLEDGMENT OF INSTRUMENTS STATE OF CALIFORNIA ) ) SS. COUNTY OF SANTA CLARA ) On April 4, 1995 before me, the undersigned notary public in and for said state, personally appeared Birk S. McCandless, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. Signature /s/ Carol J. Pluff --------------------- (Seal) Carol J. Pluff Comm. #1039493 Notary Public - California SANTA CLARA COUNTY My Comm. Expires SEP 26, 1998 9 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT State of California --------------- County of Contra Costa -------------- On 4/18/95 before me, Marimil Paikos, Notary Public personally appeared Lona S. Andrey, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. MARIMIL PAIKOS COMM. #990315 Notary Public - California CONTRA COSTA COUNTY My Comm. Expires APR 4, 1997 WITNESS my hand and official seal. /s/ Marimil Paikos -------------------------------- SIGNATURE OF NOTARY OPTIONAL Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent reattachment of this form. CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT / / INDIVIDUAL / / CORPORATE OFFICER ---------------------------------- - -------------------------------- TITLE OR TYPE OF DOCUMENT TITLE(S) / / PARTNER(S) / / LIMITED / / GENERAL ---------------------------------- NUMBER OF PAGES / / ATTORNEY-IN-FACT / / TRUSTEE(S) / / GUARDIAN/CONSERVATOR / / OTHER:______________________ _________________________________ ____________________________ DATE OF DOCUMENT ____________________________ SIGNER IS REPRESENTING: NAME OF PERSON(S) OR ENTITY(IES) __________________________________ ________________________________ SIGNER(S) OTHER THAN NAMED ABOVE ________________________________ - -Copyright-1993 NATIONAL NOTARY ASSOCIATION 8236 Remmer Ave., P.O. Box 7184 Canoga Park CA 91309-7184 EXHIBIT A SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT The Mortgaged Property The Mortgaged Property consists of the real property described in the five page legal description attached hereto. Address of Premises: 3390-3970 North First Street, San Jose, California Permanent Real Estate Taxpayer Identification Number: 59-207-6927 11 LEGAL DESCRIPTION REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: Pcl. 1 as shown on that certain Parcel Map filed in the office of the Recorder of the County of Santa Clara, State of California on August 18, 1983 in Book 516 of Maps, page(s) 34 and 35, Santa Clara County Records. PARCEL TWO: A non-exclusive easement for ingress and egress over PCL. 2, as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, and being more particularly described as follows: Strip 1 A strip of land 26.00 feet wide extending entirely across said PCL. 2 and lying 13.00 feet on each side of a line described as follows: Beginning at the most Easterly corner of said PCL. 2, said corner being on the Southwesterly line of Rose Orchard Way; thence along said Southwesterly line N. 59 DEG 57' 13" W., 38.00 feet to the true point of beginning of said strip of land; thence S. 30 DEG 02' 47" W., 28.14 feet; thence S. 37 DEG 32' 59" W., 423.45 feet to the Southwesterly line of said PCL. 2. Strip 2 A strip of land 26.00 feet wide extending entirely across said PCL. 2 and lying 13.00 feet on each side of a line described as follows: Beginning at the most Northerly corner of said PCL. 2, said corner being on the Southwesterly line of Rose Orchard Way; thence along said Southwesterly line S. 59 DEG 57' 13" E., 388.93 feet to the true point of beginning of said strip of land; thence S. 30 DEG 02' 47" W., 33.86 feet; thence S. 37 DEG 32' 48" W., 335.99 feet to the Southwesterly line of said PCL. 2. (LEGAL DESCRIPTION CONTINUED NEXT PAGE) EXHIBIT A Page 1 of 5 LEGAL DESCRIPTION: (Continued) PARCEL TWO: (Continued) Strip 3 A strip of land 26.00 feet wide extending Southwesterly from the Southwesterly line of said Rose Orchard Way to the Northwesterly line of the above described and designated Strip 2 and lying 13.00 feet on each side of a line described as follows: Beginning at the most Northerly corner of said PCL. 2, said corner being on the Southwesterly line of Rose Orchard Way; thence along said Southwesterly line S. 59 DEG 57" 13' E, 30.78 feet to the true point of beginning of said strip of land; thence S. 30 DEG 02' 47" W., 26.86 feet; thence S. 37 DEG 32' 48" W., 262.18 feet; thence S. 52 DEG 27' 12" E. 343.00 feet to the Northwesterly line of the above described and designated Strip 2. PARCEL THREE: A non-exclusive easement for Landscaping, Lighting and Irrigation Facilities over PCL. 2, as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, and being more particularly described as follows: A strip of land 10.00 feet wide extending Southeasterly from the Northwesterly line of said PCL. 1 and PCL. 2 and lying 5.00 feet on each side of a line that begins at the most Northerly corner of said PCL. 1 and runs thence along the Northeasterly line of said PCL. 1, S. 52 DEG 27" 12' E. 375.00 feet. Excepting Therefrom that portion lying within the bounds of Parcel One mentioned hereinabove. PARCEL FOUR: PCL. 2 as shown on that certain Parcel Map filed in the office of the Recorder of the County of Santa Clara, State of California on August 18, 1983 in Book 516 of Maps, page(s) 34 and 35, Santa Clara County Records. PARCEL FIVE: A non-exclusive easement for ingress and egress over PCL. 1, as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, and being more particularly described as follows: (LEGAL DESCRIPTION CONTINUED NEXT PAGE) EXHIBIT A Page 2 of 5 LEGAL DESCRIPTION: (Continued) PARCEL FIVE: (Continued) Strip 1 A strip of land 26.00 feet wide extending entirely across said PCL. 1 and lying 13.00 feet on each side of a line as follows: Beginning at the Southerly corner of said PCL. 1, said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line N. 52 DEG 27" 12' W., 34.00 feet to the true point of beginning of said strip of land; thence N. 37 DEG 32' 59" E., 540.00 feet to the Northeasterly line of said PCL. 1. Strip 2 A strip of land 40.00 feet wide extending entirely across said PCL. 1 and lying contiguous to and Southeasterly of a line described as follows: Beginning at the most Southerly corner of said PCL. 1, said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line N. 52 DEG 27" 12' W., 429.25 feet to the true point of beginning of said strip of land; thence N. 37 DEG 32' 48" E., 600.00 feet to the Northeasterly line of said PCL. 1; the Northerly terminus of said 40 foot wide strip of land being the Northeasterly line of said PCL. 1. Strip 3 A strip of land 26.00 feet wide, extending Northeasterly from the Southwesterly line of said PCL. 1 to the Northwesterly line of the above described and designated Strip 2 and lying 13.00 feet on each side of a line described as follows: Beginning at the Westerly corner of said PCL. 1, said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line S. 52 DEG 27' 12" E., 34.00 feet to the true point of beginning of said strip of land; thence N. 37 DEG 32' 48" E. 566.00 feet; thence S. 52 DEG 27' 12" E, 355.25 feet to said Northwesterly line of said Strip 2. Strip 4 A strip of land 13.00 feet wide lying contiguous to and Northwesterly of the Northwesterly line of the above described and designated Strip 2 and extending Southwesterly from the Northeasterly line of said PCL. 1 approximately 21.00 feet to the Northeasterly line of the above described and designated Strip 3. PARCEL SIX: The right from time to time to construct, install, maintain, replace, remove, and use storm drain sewers, together with a right of way therefor, over a portion of PCL. 1 as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, being more particularly described as follows: (LEGAL DESCRIPTION CONTINUED NEXT PAGE) EXHIBIT A Page 3 of 5 LEGAL DESCRIPTION: (Continued) PARCEL SIX: (Continued) Strip 1 A strip of land 10.00 feet wide extending entirely across said PCL. 1 and lying 5.00 feet on each side of a line described as follows: Beginning at the most Westerly corner of said PCL. 1 said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line S. 52 DEG 27' 12" E. 402.75 feet to the true point of beginning of said strip of land; thence along the centerline of a existing storm drain line the following courses: thence N. 37 DEG 32' 48" E., 28.00 feet to a point herein designated Point A; thence N. 52 DEG 27' 12" W., 278.00 feet; thence N. 00 DEG 51' 00" E., 198.30 feet; thence N. 37 DEG 32' 33" E., 279.75 feet; thence S. 51 DEG 19' 51" E., 89.02 feet; thence N. 50 DEG 06' 47" E., 133.18 feet; thence N. 37 DEG 32' 48" E., 5.00 feet to the Northeasterly line of said PCL. 1. Strip 2 A strip of land 10 feet wide extending Northeasterly from the Northeasterly line of the above described and designated Strip 1 and lying 5.00 feet on each side of a line which begins at said Point A; thence along the centerline of an existing storm drain line the following courses: thence N. 26 DEG 55' 37" E., 154.65 feet; thence N. 32 DEG 55' 53" E., 96.31 feet; thence N. 43 DEG 21' 28" E., 113.58 feet; thence N. 54 DEG 44' 21" E., 105.72 feet to a point herein designated as Point B; thence S. 41 DEG 57' 14" E., 65.85 feet; thence N. 37 DEG 32' 48" E., 62.00 feet to the Northeasterly line of said PCL. 2. Strip 3 A strip of land 5.00 feet wide lying contiguous to and Southwesterly of the Northeasterly line of said PCL. 1 and extending Southeasterly from the Southeasterly line of the above described and designated Strip 2 approximately 225 feet. Strip 4 A strip of land 10.00 feet wide extending Northeasterly from the Northeasterly line of the above described and designated Strip 2 to the Northeasterly line of said PCL. 1 and lying 5.00 feet on each side of a line that begins at said Point B; thence along the centerline of an existing storm drain line N. 37 DEG 32' 48" E.; 50.00 feet to the Northeasterly line of said PCL. 1. PARCEL SEVEN: The right from time to time to construct, install, inspect, maintain, replace, remove and use any and all Public Service Facilities necessary or useful, together with a right of way therefor, over a portion of PCL 1. as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, being more particularly described as follows: (LEGAL DESCRIPTION CONTINUED NEXT PAGE) EXHIBIT A Page 4 of 5 LEGAL DESCRIPTION: (Continued) PARCEL SEVEN: (Continued) Strip 5 A strip of land 15.00 feet wide extending entirely across said PCL. 1 and lying 7.50 feet on each side of a line described as follows: Beginning at the most Southerly corner of said PCL. 1, said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line N. 52 DEG 27' 12" W., 60.50 feet to the true point of beginning of said strip of land; thence N. 37 DEG 32' 59" E., 394.80 feet to a point herein designated Point C; thence N. 37 DEG 32' 59" E., 105.20 feet; thence N. 7 DEG 27' 01" W., 56.57 feet to the Northeasterly line of said PCL. 1. Strip 6 A strip of land 15.00 feet wide extending Northerly from the Northerly line of the above described and designated Strip 5 to the Northeasterly line of said PCL. 1 and lying 7.5 feet on each side of a line that begins at said Point C; thence N. 30 DEG 01' 00" E., 59.5 feet; thence N. 8 DEG 41' 00" E., 98.44 feet to the Northeasterly line of said PCL. 1. Strip 7 A strip of land 15.00 feet wide extending entirely across said PCL. 1 and lying 7.5 feet and each side of a line described as follows: Beginning at the most Westerly corner of said PCL. 1 said corner being on the Northeasterly line of North First Street; thence along said Northeasterly line S. 52 DEG 27' 12" E., 30.00 feet to the true point of beginning of said strip of land; thence N. 37 DEG 32' 33" E., 600.00 feet to the Northeasterly line of said PCL 1. Strip 8 That area located within those portions of PCL. 1, of the Parcel Map mentioned hereinabove, lying within the easements designated as "P.S.E.", as shown on said Parcel Map. PARCEL EIGHT: A non-exclusive easement for Landscaping, Lighting and Irrigation Facilities over PCL. 1, as said parcel is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa Clara County Records, and being more particularly described as follows: A strip of land 10.00 feet wide extending Southeasterly from the Northwesterly line of said PCL. 1 and PCL. 2 and lying 5.00 feet on each side of a line that begins at the most Northerly corner of said PCL. 1 and runs thence along the Northeasterly line of said PCL. 1, S. 52 DEG 27' 12" E. 375.00 feet. Excepting Therefrom that portion lying within the bounds of Parcel Four mentioned hereinabove. EXHIBIT A Page 5 of 5 EX-10.26 9 EXHIBIT 10.26 LEASE AGREEMENT 1. PARTIES. This Lease, dated for reference purposes only, January 11, 1996, is made by and between SOUTH BAY/FORTRAN, a California limited partnership, ("Landlord"), and NOVELLUS SYSTEMS, INC., a California corporation ("Tenant"). 2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, upon the terms and conditions hereinafter set forth, those certain premises (the "Premises") presently known, as of the date of this Lease, as 4415 Fortran Court, situated in the City of San Jose, County of Santa Clara, State of California, described as follows: for purposes of this Lease, the rentable square footage area of the Building shall be deemed to be approximately thirty-eight thousand two hundred eighty-four (38,284) square feet (the "Building"), as shown cross-hatched on the site plan (the "Site Plan") attached hereto as EXHIBIT "A". The Building is located on a larger parcel (the "Parcel") containing other buildings (the "Buildings") as shown on the Site Plan, which Parcel is described in EXHIBIT "B" attached hereto. In the event Landlord subdivides the Parcel in the future into two (2) or more legal parcels, the term "Parcel" shall thereafter refer to the legal parcel on which the Premises are located. Landlord shall deliver the premises in good condition and repair, including the roof, heating, ventilation and air conditioning (HVAC) equipment and structural integrity of the building and in compliance with all governmental codes, ordinances and statues, including those applicable under the Americans of Disabilities Act (ADA). Landlord shall not be required to make any alterations, additions or improvements to the Premises and the Premises shall be leased to Tenant in an "as-is" condition, except for those improvements as defined as "Landlord's Improvements" in EXHIBIT "C" attached hereto and made a part hereof. THE EXACT SQUARE FOOTAGE SHALL BE DETERMINED UPON FINAL APPROVAL OF THE FINAL TENANT IMPROVEMENT PLANS, WHICH TENANT DESIRES TO CONSTRUCT AT ITS SOLE COST, PURSUANT TO EXHIBIT "D" ATTACHED HERETO. 3. TERM. The term of this Lease ("Lease Term") shall be for two (2) years, commencing upon the earlier of i) RECEIPT OF A CERTIFICATE OF OCCUPANCY OR FINAL BUILDING PERMIT, upon completion of tenant improvements, as outlined in EXHIBITS "C" AND "D" attached hereto, or, ii) April 15, 1996, (the "Commencement Date") and ending two (2) years thereafter, unless sooner terminated pursuant to any provision hereof. Notwithstanding said scheduled Commencement Date, if for any reason Landlord cannot deliver possession of the Premises to Tenant on said date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder, but in such case Tenant shall not be obligated to pay rent until possession of the Premises is tendered to Tenant and the commencement and termination dates of this Lease shall be revised to conform to the date of Landlord's delivery of possession. In the event Landlord shall permit Tenant to occupy the Premises prior to the Commencement Date, such occupancy shall be subject to all the provisions of this Lease, including the obligation to pay the Monthly Installment of rent, and Common Area Charges. 4. RENT. A. TIME OF PAYMENT. Tenant shall pay to Landlord as rent for the Premises the sum specified in Paragraph 4.B below (the "Monthly Installment") each month in advance on the first day of each calendar month, without deduction or offset, prior notice or demand, commencing on the Commencement Date and continuing through the term of this Lease, together with such additional rents as are payable by Tenant to Landlord under the terms of this Lease. The Monthly Installment for any period during the lease Term which period is less than one (1) full month shall be a prorata portion of the Monthly Installment based upon a thirty (30) day month. B. MONTHLY INSTALLMENT. The Monthly Instalment of rent payable each month during the term shall be Twenty Thousand Six Hundred Seventy-Three and 36/100ths Dollars ($20,673.36) per month. 1 C. LATE CHARGE. Tenant acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs includes, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, Tenant shall pay to Landlord, as additional rent, a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of its other rights and remedies granted hereunder. D. ADDITIONAL RENT. All taxes, insurance premiums, Common Area Charges, late charges, costs and expenses which Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon in the event of Tenant's failure to pay such amounts, and all reasonable damages, costs and attorneys' fees and expenses which Landlord may incur by reason of any default of Tenant or failure on Tenant's part to comply with the terms of this Lease, shall be deemed to be additional rent ("Additional Rent") and shall be paid in addition to the Monthly Installment of rent, and, in the event of nonpayment of the Monthly Installment of rent. E. PLACE OF PAYMENT. Rent shall be payable in lawful money of the United States of America to Landlord at 511 Division Street, Campbell CA, or to such other person(s) or at such other place(s) as Landlord may designate in writing. F. ADVANCE PAYMENT. Concurrently with the execution of this Lease, Tenant shall pay the Landlord the sum of Twenty Thousand Six Hundred Seventy- three and 36/100ths Dollars ($20,673.36) to be applied to the Monthly Instalment of rent first accruing under this Lease. 5. SECURITY DEPOSIT. Tenant shall deposit the sum of Twenty Thousand Six Hundred Seventy-three and 36/100ths Dollars ($20,673.36) (the "Security Deposit") upon execution of this Lease, to secure the faithful performance by Tenant of each term, covenant and condition of this Lease. If Tenant shall at any time fail to make any payment or fail to keep or perform any term, covenant or condition on its part to be made or performed or kept under this Lease, Landlord may, but shall not be obligated to and without waiving or releasing Tenant from any obligation under this Lease, use, apply or retain the whole or any part of the Security Deposit (A) to the extent of any sum due to Landlord; (B) to make any required payment on Tenant's behalf; or (C) to compensate Landlord for any loss, damages, attorneys' fees or expense sustained by Landlord due to Tenant's default. In such event, Tenant shall, within five BUSINESS (5) days of written demand by Landlord, remit to Landlord sufficient funds to restore the Security Deposit to its original sum. No interest shall accrue on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general funds. Should Tenant comply with all the terms, covenants, and conditions of this Lease and at the end of the term of this Lease leave the Premises in the condition required by this Lease, then said Security Deposit, less any sums owing to Landlord, shall be returned to Tenant within thirty (30) days after the termination of this Lease and vacancy of the Premises by Tenant. 2 6. USE OF PREMISES. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of office, research & development, light manufacturing, distribution and warehousing of products for the electronics industry, and for no other purpose. Tenant shall indemnify, protect, defend, and hold Landlord harmless against any loss, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any applicable law. Tenant shall not commit or suffer to be committed, any waste upon the Premises, or any nuisance, or other acts or things which may disturb the quiet enjoyment of any other tenant in the buildings adjacent to the Premises, or allow any sale by auction upon the Premises, or allow the Premises to be used for any unlawful purpose, or place any loads upon the floor, walls or ceiling which endanger the structure, or place any harmful liquids in the drainage system of the Building. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises outside of the Building proper, except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain on any portion of the Premises outside of the Building proper. Tenant shall strictly comply with the provisions of Paragraph 39 below. 7. TAXES AND ASSESSMENTS. A. TENANT'S PROPERTY. Tenant shall pay before delinquency any and all taxes and assessment, license fees and public charges levied, assessed or imposed upon or against Tenant's fixtures, equipment, furnishings, furniture, appliances and personal property installed or located on or within the Premises. Tenant shall cause said fixtures, equipment, furnishings, furniture, appliances and personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property. B. PROPERTY TAXES. Tenant shall pay, as additional rent, its Pro Rata Share (as defined below) of all Property Taxes levied or assessed with respect to the land comprising the Parcel and with respect to all buildings and improvements located on the Parcel which become due or accrue during the term of this Lease. Tenant shall pay such Property Taxes to Landlord within twenty (20) days after receipt of billing. Provided that Landlord bills Tenant at least thirty (30) days prior to the delinquency date of such Property Taxes, Tenant shall pay such Property Taxes to Landlord at least ten (10) days prior to the delinquency date, and if Tenant fails to do so, Tenant shall reimburse Landlord, on demand, for all interest, late fees and penalties that the taxing authority charges Landlord. In the event Landlord's mortgagee requires an impound for Property Taxes, then on the first day of each month during the Lease Term, Tenant shall pay Landlord one twelfth (1/12) of its annual share of such Property Taxes. IF PAYMENT IS MADE ON A MONTHLY BASIS, LANDLORD SHALL ANNUALLY RECONCILE SAID PAYMENTS VERSUS THE ACTUAL PROPERTY TAX BILL FOR THE PERIOD IN QUESTION AND EITHER REIMBURSE TENANT FOR ANY OVERPAYMENTS OR BILL TENANT FOR ANY PAYMENTS LESS THAN THE ACTUAL BILL. Tenant's liability hereunder shall be prorated to reflect the Commencement and termination dates of this Lease. Tenant's share of the Property Taxes shall be determined by Landlord from the respective valuation assigned in the Assessor's worksheet or such other information as may be reasonably available. Landlord's reasonable determination thereof, in good faith, shall be conclusive. As used in this Lease, the term "Tenant's Pro Rata Share" shall mean a fraction, expressed as a percentage, the numerator of which is the number of square feet of floor space contained in the Premises (38,284 SQUARE FEET) and the denominator of which is the number of square feet of floor space contained in all of the Buildings located on the Parcel (295,529 SQUARE FEET). As of the Commencement Date, Tenant's Pro Rata Share is twelve and ninety-five hundredths percent (12.95%). 3 For the purpose of this Lease, "Property Taxes" means and includes all taxes, assessments (including, but not limited to, assessments for public improvements or benefits), taxes based on vehicles, utilizing parking areas, taxes based or measured by the rent paid, payable or received under this Lease, taxes on the value, use, or occupancy of the Premises, the Buildings and/or the Parcel, Environmental Surcharges, and all other governmental impositions and charges of every kind and nature whatsoever, whether or not customary or within the contemplation of the parties hereto and regardless of whether the same shall be extraordinary or ordinary, general or special, unforeseen or foreseen, or similar or dissimilar to any of the foregoing which, at any time during the Lease Term, shall be applicable to the Premises, the Buildings and/or the Parcel or assessed, levied or imposed upon the Premises, the Buildings and/or the Parcel, or become due and payable and a lien or charge upon the Premises, the Buildings and/or the Parcel, or any part thereof, under or by virtue of any present or future laws, statutes, ordinances, regulations or other requirements of any governmental authority whatsoever. The term "Environmental Surcharges" shall mean and include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, the Federal Environmental protection Agency, the Federal Clean Air Act, or any regulations promulgated thereunder or any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments, or other types of surcharges as a means of controlling or abating environmental pollution or the use of energy. The term "Property Taxes" shall not include any federal, state or local net income, estate, or inheritance tax imposed on Landlord, OR PENALTIES AND INTEREST INCURRED BY LANDLORD'S LATE PAYMENT, UNLESS PENALTY OR INTEREST IS SPECIFICALLY DUE TO TENANT'S LATE PAYMENT OF PROPERTY TAXES. C. OTHER TAXES: Tenant shall, as additional rent, pay or reimburse Landlord for any tax based upon, allocable to, or measured by the area of the Premises or the Buildings or the Parcel; or by the rent paid, payable or received under this Lease; any tax upon or with respect to the possession, leasing, operation, any tax upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion thereof; any privilege tax, excise tax, business and occupation tax, gross receipts tax, sales and/or use tax, water tax, sewer tax, employee tax, occupational license tax imposed upon Landlord or Tenant with respect to the Premises; any tax upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. 8. INSURANCE. A. INDEMNITY. EXCEPT FOR LANDLORD'S BREACH UNDER THIS LEASE, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT, Tenant agrees to indemnify, protect and defend Landlord against and hold Landlord harmless from any and all claims, causes of action, judgements, obligations or liabilities, and all reasonable expenses incurred in investigating or resisting the same (including reasonable attorneys' fees), on account of, or arising out of, AND TO THE EXTENT RELATING TO TENANT'S operation, maintenance, use or occupancy of the Premises and all areas appurtenant thereto. This Lease is made on the express understanding that Landlord shall not be liable for, or suffer loss by reason of, injury to person or property, form whatever cause (except for active negligence or willful misconduct of Landlord), which in any way may be connected with the operation, use or occupancy of the Premises specifically including, without limitation, any liability for injury to the person or property of Tenant, its agents, officers, employees, licensees and invitees. B. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in force during the term of this Lease a policy of comprehensive public liability insurance insuring Landlord and Tenant against claims and liabilities arising out of the operation, use, or occupancy of the Premises and all areas appurtenant thereto, including parking areas. Such insurance shall be in an amount of not less than Three Million Dollars ($3,000,000.00) for bodily injury or death as a result of any one occurrence and Five Hundred Thousand Dollars 4 ($500,000.00) for damage to property as a result of any one occurrence. The insurance shall be with companies approved by Landlord, with approval Landlord agrees not to withhold unreasonably. Tenant shall deliver to landlord, prior to possession, and at least thirty (30) days prior to the expiration thereof, a certificate of insurance evidencing the existence of the policy required hereunder and such certificate shall certify that the policy (1) names Landlord as an additional insured, (2) shall not be canceled or altered without thirty (30) days prior written notice to Landlord, (3) insures performance of the indemnity set forth in Paragraph 8.A above, (4) the coverage is primary and any coverage by Landlord is in excess thereto and (5) contains a cross-liability endorsement. Landlord may maintain a policy or policies of comprehensive general liability insurance insuring Landlord (and such others as are designated by Landlord), against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or the Common Area, with such limits of coverage as Landlord may from time to time determine are reasonably necessary for its protection. The cost of any such liability insurance maintained by Landlord shall be a Common Area Charge and Tenant shall pay, as additional rent, its share of such cost to Landlord as provided in Paragraph 12 below. C. PROPERTY INSURANCE. Landlord shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises and the Buildings, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months rent (including, without limitation, sums payable as Additional Rent), plus, at Landlord's option, flood insurance and earthquake insurance, and any other coverages which may be required from time to time by Landlord's mortgagee. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord on the Premises. Tenant shall, within twenty (20) days after receipt of billing, pay to Landlord as additional rent, the full cost of such insurance procured and maintained by Landlord. Tenant acknowledges that such insurance procured by Landlord shall contain a deductible which reduces Tenant's cost for such insurance and, in the event of loss or damage, Tenant shall be required to pay to Landlord the amount of such deductible. D. TENANT'S INSURANCE. Release of Landlord. Tenant acknowledges that the insurance to be maintained by Landlord on the Premises pursuant to Subparagraph C above will not insure any of Tenant's property. Accordingly, Tenant, at Tenant's own expense, shall maintain in full force and effect on all of its fixtures, equipment, leasehold improvements and personal property in the Premises, a policy of "All Risk" coverage insurance to the extent of at least ninety percent (90%) of their insurable value. Tenant hereby releases Landlord, and its partners, officers, agents employees and servants from any and all claims, demands, losses, expenses or injuries to the Premises or to the furnishings, fixtures, equipment, inventory or other personal property of Tenant in, about, or upon the Premises, which are caused by perils, events or happenings where the same are covered by the insurance required by this Lease or which are the subject of insurance carried by Tenant and in force at the time of such loss. E. MUTUAL WAIVER OF SUBROGATION. TENANT AND LANDLORD HEREBY MUTUALLY WAIVE THEIR RESPECTIVE RIGHTS OF RECOVERY AGAINST EACH OTHER OF ANY LOSS OF OR DAMAGE TO THE PROPERTY OF EITHER PARTY, TO THE EXTENT SUCH LOSS OR DAMAGE IS INSURED BY ANY INSURANCE POLICY REQUIRED TO BE MAINTAINED BY THIS LEASE OR OTHERWISE IN FORCE AT THE TIME OF SUCH LOSS OR DAMAGE. EACH PARTY SHALL OBTAIN ANY SPECIAL ENDORSEMENTS, IF REQUIRED BY THE INSURER, WHEREBY THE INSURER WAIVES ITS RIGHT OF SUBROGATION AGAINST THE OTHER PARTY HERETO. THE PROVISIONS OF THIS SUBPARAGRAPH 8.3 SHALL NOT APPLY IN THOSE INSTANCES IN WHICH THE WAIVER OF SUBROGATION WOULD CAUSE EITHER PARTY'S INSURANCE COVERAGE TO BE VOIDED OR OTHERWISE MADE UNCOLLECTIBLE. 5 9. UTILITIES. Tenant shall pay for all water, gas, light, heat, power, electricity, telephone, trash pickup, sewer charges and all other services supplied to or consumed on the Premises, and all taxes and surcharges thereon. In addition, the cost of any utility services supplied to the Common Area or not separately metered to the Premises shall be a Common Area Charge and Tenant shall pay its share of such costs to Landlord as provided in Paragraph 12 below. 10. REPAIRS AND MAINTENANCE. A. LANDLORD'S REPAIRS. Subject to provisions of Paragraph 16, Landlord shall keep and maintain the exterior roof, structural elements and exterior walls of the Building in good order and repair. Landlord shall not, however, be required to maintain, repair or replace the interior surface of exterior walls, nor shall Landlord be required to maintain, repair or replace windows, doors, skylights or plate glass. Landlord shall have no obligation to make repairs under this Subparagraph until a reasonable time after receipt of written notice from Tenant of the need for such repairs. Tenant shall reimburse Landlord, as additional rent, within THIRTY (30) days after receipt of billing, for the cost of such repairs and maintenance which are the obligation of Landlord hereunder, provided however, that Tenant shall not be required to reimburse Landlord for the cost of maintenance and repairs of the structural elements of the Building unless such maintenance or repair is required because of the negligence or willful misconduct of Tenant or its employees, agents or invitees. As used herein, the term "structural elements of the building" shall mean and be limited to the foundation, footings, floor slab (bit not flooring), structural walls, and roof structure (INCLUDING ROOFING OR ROOF MEMBRANE ONLY TO BE INCLUDED DURING THE FIRST TWO (2) YEARS OF THE LEASE TERM, UNLESS TENANT MAKES ANY PENETRATIONS TO THE ROOFING OR ROOF MEMBRANE AT ANY TIME DURING THEIR TENANCY, IN WHICH CASE TENANT SHALL BE SOLELY RESPONSIBLE FOR REPAIRS AND MAINTENANCE OF THE ROOFING AND ROOF MEMBRANE.) UPON EXPIRATION OF THE FIRST TWO (2) YEARS OF THE LEASE TERM, TENANT SHALL BECOME RESPONSIBLE FOR REPAIRS AND MAINTENANCE BIT NOT REPLACEMENT OF THE ROOFING OR ROOF MEMBRANE. B. TENANT'S REPAIRS. Except as expressly provided in Subparagraph A above, Tenant shall, at its sole cost, keep and maintain the entire Premises and every part thereof, including without limitation, the windows, window frames, plate glass, glazing, skylights, truck doors, doors and all door hardware, the walls and partitions, and the electrical, plumbing, lighting, heating, ventilating and air conditioning systems and equipment in good order, condition and repair. The term "repair" shall include replacement, restorations and/or renewals when necessary as well as painting. THE TERM "REPAIR" SHALL NOT INCLUDE REPLACEMENT OF HEATING, VENTILATING AND AIR CONDITIONING ("HVAC") EQUIPMENT DURING THE FIRST TWO (2) YEARS OF THE LEASE TERM ONLY EXCEPT ON HVAC EQUIPMENT INSTALLED BY TENANT AS PART OF THE FINAL TENANT IMPROVEMENT PLANS PURSUANT TO EXHIBIT "D" AND UNLESS SUCH REPLACEMENT IS DUE TO TENANT'S ABOVE "STANDARD USE", TENANT'S MISUSE, OR TENANT'S FAILURE TO MAINTAIN THE HVAC EQUIPMENT, AS REQUIRED BELOW. THE TERM "STANDARD USE" SHALL BE DEFINED AS OPERATION BASED ON A NORMAL BUSINESS DAY'S HOURS, NOT TO EXCEED TEN (10) HOURS. ANY OPERATION THAT EXCEEDS THE "STANDARD USE" HOURS SHALL BE DEEMED TO BE "ABOVE STANDARD USE". Tenant's obligation shall extend to all alterations, additions and improvements to the Premises, and all fixtures and appurtenances therein and thereto. Tenant shall, at all times during the Lease Term, have in effect a service contract for the maintenance of the heating, ventilating and air conditioning ("HVAC") equipment with an HVAC service contract shall provide for periodic inspection and servicing at least once every three (3) months during the term hereof, and Tenant shall provide Landlord with a copy of such contract and all periodic service reports. Should Tenant fail to make repairs required of Tenant hereunder forthwith upon FIFTEEN (15) DAYS WRITTEN notice from Landlord or should Tenant fail thereafter to diligently complete the repairs, Landlord, in addition to all other remedies available hereunder or by law and without waiving any alternative remedies, may make the same, and in that event, Tenant shall reimburse Landlord as additional rent for the cost of such maintenance or repairs within five (5) days of written demand by Landlord Landlord shall have no maintenance or repair obligation whatsoever with respect to the Premises except as expressly provided in Paragraphs 10.A and 11. Tenant hereby expressly waives the provisions of Subsection 1 of Section 1932 and Section 1941 and 1942 of the Civil Code of California and all rights to make repairs at the expense of Landlord as provided in Section 1942 of said Civil Code. There shall be no allowance to Tenant for diminution of rental value, and no liability on the part of Landlord (EXCEPT FOR LANDLORD'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) by reason of inconvenience, annoyance or injury to business arising from the making of or the failure to make, any repairs, alternations, decorations, additions or improvements in or to any portion of the Premises or the Building or Common Area (or any or the areas used in connection with the operation thereof, or in or to any fixtures, appurtenances or equipment), or by reason of the negligence of Tenant or any other tenant or occupant of the Parcel. In no event shall Landlord be responsible for any consequential damages arising or alleged to have arisen from any of the foregoing matters. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Premises, the Building, or the Common Area, nor shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents or contractors whether such damage or injury is caused by or results from fire, steam, electricity gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portion of the Building, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the Building or the Parcel. 11. COMMON AREA. Subject to the terms and conditions of this Lease and such rules and regulations as Landlord may from time to time REASONABLY prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Parcel, and their respective employees, invitees and customers, and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Parcel, which areas and facilities are referred to herein as "Common Area. This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interest of the occupants of the Parcel. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy of them to Tenant. Tenant shall have the non-exclusive use of no more than one hundred fifty-three (153) of the parking spaces in the Common Area as designated from time to time by Landlord. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not abandon any inoperative vehicles or equipment on any portion of the Common Area. Tenant shall make no alterations, improvements or additions to the Common Area. 7 Landlord shall operate, manage, insure, maintain and repair the Common Area in good order, condition and repair. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the COMMERCIALLY REASONABLE discretion of Landlord. The cost of such repair, maintenance, operation, insurance and management, including without limitation, maintenance and repair of landscaping, irrigation systems, paving, sidewalks, fences, and lighting, shall be a Common Area Charge and Tenant shall pay to Landlord its share of such costs as provided in Paragraph 12 below. 12. COMMON AREA CHARGES. Tenant shall pay to Landlord, as additional rent, upon demand but not more often than once each calendar month, an amount equal to its Pro Rata Share of the Common Area Charges as defined in Paragraphs 8.C, 9, 11 of this Lease. Tenant acknowledges and agrees that the Common Area Charges shall include an additional five percent (5%) of the actual expenditures in order to compensate Landlord for accounting, management and processing services. NOTWITHSTANDING ANYTHING CONTAINED THE LEASE, NO EXPENSES INCURRED FOR THE FOLLOWING SHALL BE INCLUDED IN OPERATING EXPENSES: (i) REPAIRS OR OTHER WORK OCCASIONED BY FIRE, WINDSTORM OR OTHER CASUALTY OF A NATURE COVERED BY INSURANCE REQUIRED TO BE CARRIED BY LANDLORD PURSUANT TO THE TERMS OF THIS LEASE OR ANY PRESENT OR FUTURE GROUND LEASE OR DEED OF TRUST COVERING THE PROJECT (EXCEPT FOR THE COST OF CASH REPAIRS OR OTHER WORK THAT RELATES TO THE DEDUCTIBLE PORTION OF THE INSURANCE POLICY COVERING SUCH CASUALTY) OR BY THE EXERCISE OF THE RIGHT OF EMINENT DOMAIN; (ii) LEASING COMMISSIONS, ACCOUNTANTS' OR ATTORNEYS' FEES, COSTS AND DISBURSEMENTS AND OTHER EXPENSES INCURRED IN CONNECTION WITH THE NEGOTIATIONS OR DISPUTES WITH THE TENANTS OR OTHER OCCUPANTS OR PROSPECTIVE TENANTS OR OTHER OCCUPANTS, OR ASSOCIATED WITH THE ENFORCEMENT OF ANY LEASES OR DEFENSE OF LANDLORD'S TITLE TO OR INTEREST IN THE PROJECT OR ANY PART THEREOF; (iii) COSTS (INCLUDING PERMIT, LICENSE AND INSPECTION FEES) INCURRED IN RENOVATING OR OTHERWISE IMPROVING OR DECORATING, PAINTING, OR REDECORATING SPACE FOR TENANTS CONSESSIONAIRIES OR OTHER OCCUPANTS OR VACANT RENTABLE SPACE; (iv) THE COSTS OF ANY SERVICES SOLD OR PROVIDED TENANTS OR OTHER OCCUPANTS FOR WHICH LANDLORD IS ENTITLED TO BE REIMBURSED BY SUCH TENANTS OR OTHER OCCUPANTS AS AN ADDITIONAL CHARGE OR RENTAL OVER AND ABOVE THE BASIC RENT AND ESCALATIONS PAYABLE UNDER THE LEASE WITH SUCH TENANT OR OTHER OCCUPANT; (v) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED ABOVE, COSTS INCURRED BY LANDLORD FOR ANY ALTERATION, ADDITION OR EQUIPMENT THAT IS CONSIDERED A CAPITAL IMPROVEMENT OR REPLACEMENT UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; (vi) DEPRECIATION AND AMORTIZATION; (vii) EXCEPT TO THE EXTENT EXPRESSLY PROVIDED ABOVE, COSTS OF A CAPITAL NATURE, INCLUDING, BUT NOT LIMITED TO CAPITAL IMPROVEMENTS, CAPITAL REPAIRS, CAPITAL EQUIPMENT, AND CAPITAL TOOLS, ALL AS DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; (viii) EXPENSES IN CONNECTION WITH SERVICES OR OTHER BENEFITS OF A TYPE THAT IS NOT PROVIDED TENANT IN REASONABLE PROPORTION TO THE SPACE LEASED BY TENANT BUT THAT IS PROVIDED TO ANOTHER TENANT OR OCCUPANT; (ix) COSTS INCURRED DUE TO VIOLATION BY LANDLORD OR ANY OTHER TENANT OF THE TERMS AND CONDITIONS OF ANY LEASE; (x) INTEREST ON DEBT OR AMORTIZATION PAYMENTS ON ANY MORTGAGES OR DEEDS OF TRUST OR ANY OTHER BORROWINGS; (xi) LANDLORD'S GENERAL CORPORATE OVERHEAD AND GENERAL ADMINISTRATIVE EXPENSES; (xii) ALL ITEMS AND SERVICES FOR WHICH TENANT OR ANY OTHER TENANT SEPARATELY REIMBURSES LANDLORD OR PAYS THIRD PERSONS; (xiv) ADVERTISING AND PROMOTIONAL EXPENDITURES; (xv) PROPERTY MANAGEMENT FEES EXCEEDING THREE PERCENT(3%) OF GROSS REVENUE; AND (xvi) ANY OTHER EXPENSE THAT UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPALS AND PRACTICES WOULD NOT BE CONSIDERED A MAINTENANCE OR OPERATING EXPENSE. TENANT MAY AUDIT THE LANDLORD'S ACCOUNTING RECORDS REGARDING OPERATING EXPENSES AND TAXES AND UPON TEN (10) DAYS' ADVANCE WRITTEN NOTICE. IF TENANT DISCOVERS AN OVERSTATEMENT OF OPERATING EXPENSES OR TAXES, LANDLORD SHALL PROMPTLY REFUND ANY AMOUNTS OWED TO TENANT. IF 8 TENANT DISCOVERS AN OVERSTATEMENT OF OPERATING EXPENSES AND TAXES WHICH EXCEEDS ONE HUNDRED TEN PERCENT (110%) OF THE ACTUAL OPERATING EXPENSES AND TAXES, LANDLORD SHALL REIMBURSE TENANT FOR ALL REASONABLE COSTS AND EXPENSES OF TENANT'S AUDIT. 13. ALTERATIONS. Tenant shall not make, or suffer to be made, any alterations, improvements or additions in, on, about or to the Premises or any part thereof, without the prior written consent of Landlord, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, and without a valid building permit issued by the appropriate governmental authority. As a condition to giving such consent, Landlord may require that Tenant agree to remove any such alterations, improvements or additions at the termination of this Lease and to restore the Premises to their prior condition. Unless Landlord requires that Tenant remove any such alterations, improvement or addition, and alteration, addition or improvement to the Premises, except moveable furniture and trade fixtures not affixed to the Premises, shall become the property of Landlord upon termination of the Lease and shall remain upon and be surrendered with the Premises at the termination of this Lease. Without limiting the generality of the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery, and carpet installations made by Tenant regardless of how affixed to the Premises, together with all other additions, alterations and improvements that have become an integral part of the Building, shall be and become the property of the Landlord upon termination of the Lease, and shall not be deemed trade fixtures, and shall remain upon and be surrendered with the Premises at the termination of this Lease. IT IS HEREBY ACKNOWLEDGED BY LANDLORD THAT TENANT DESIRES TO CONSTRUCT CERTAIN IMPROVEMENTS AS OUTLINED IN THE FINAL TENANT IMPROVEMENT PLANS PURSUANT TO EXHIBIT "D" ATTACHED HERETO AND MADE A PART HEREOF. LANDLORD SHALL DETERMINE UPON FINAL APPROVAL OF THE FINAL TENANT IMPROVEMENT PLAN THOSE IMPROVEMENTS EXISTING PRIOR TO CONSTRUCTION OF THE FINAL TENANT IMPROVEMENT PLANS WHICH LANDLORD SHALL REQUIRE TENANT TO RETURN TO ITS ORIGINAL CONDITION UPON EXPIRATION OR EARLIER TERMINATION OF THIS LEASE. LANDLORD SHALL MORE CLOSELY DEFINE THOSE IMPROVEMENTS TO BE RETURNED TO ORIGINAL CONDITION BY TENANT IN A PLAN ATTACHED HERETO AS EXHIBIT "E". If, during the term hereof, any alteration, addition or change of any sort to all or any portion of the Premises is required by law, regulation, ordinance or order of any public agency, Tenant shall promptly make the same at its sole cost and expense. If during the term hereof, any alteration, addition, or change to the Common Area is required by law, regulation, ordinance or order of any public agency, AND IS REQUIRED DUE TO TENANT'S SPECIFIC USE OR OCCUPANCY OF THE PREMISES, Landlord shall make the same and the cost of such alteration, or change shall be a Common Area Charge and Tenant shall pay its share of said cost to Landlord as provided in Paragraph 12 above. 14. ACCEPTANCE OF THE PREMISES. By entry and taking possession of the Premises pursuant to this Lease, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the Premises in their condition existing as of the date of such entry, and Tenant further accepts the tenant improvements to be constructed by Landlord, if any, as being completed in accordance with the plans and specifications for such improvements, except for punch list items. Tenant acknowledges that neither the Landlord nor Landlord's agents has made any representation or warranty as to the suitability of the Premises to the conduct of Tenant's business. Any agreements, warranties or representations not expressly contained herein shall in no way bind either Landlord or Tenant, and Landlord and Tenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Lease. This Lease constitutes the entire understanding between the parties hereto and no addition to, or modification of, any term or provision of this Lease shall be effective until set forth in a writing signed by both Landlord and Tenant. 9 15. DEFAULT. A. EVENTS OF DEFAULT. A breach of this Lease shall exist if any of the following events (hereinafter referred to as "Event of Default") shall occur: 1. Default in the payment when due of any installment of rent or other payment required to be made by Tenant hereunder, where such default shall not have been cured within three (3) days after written notice of such default is given to Tenant; 2. Tenant's failure to perform any other term, covenant or condition contained in this Lease where such failure shall have continued for THIRTY (30) DAYS after written notice of such failure is given to Tenant; UNLESS THE NATURE OF DEFAULT IS SUCH THAT IT CANNOT BE CURED WITHIN THIRTY (30) DAYS, IN WHICH CASE TENANT SHALL NOT BE IN DEFAULT PROVIDED TENANT COMMENCES SAID CURE WITHIN THIRTY (30) DAYS FROM WRITTEN NOTICE AND DILIGENTLY PURSUES SAID CURE. 3. Tenant's vacating (WITHOUT WRITTEN NOTICE TO LANDLORD) or abandonment of the Premises; 4. Tenant's assignment of its assets for the benefit of its creditors: 5. The sequestration of, attachment of, or execution on, any substantial part of the property of Tenant or on any property essential to the conduct of Tenant's business shall have occurred and Tenant shall have failed to obtain a return or release of such property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; 6. Tenant or any guarantor of Tenant's obligations hereunder shall commence any case proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seek appointment of a receiver, trustee, custodian, or other similar official for it or for all or any substantial part of its property; 7. Tenant or any such guarantor shall take any corporate action to authorize any of the actions set forth in Clause 6 above; or 8. Any case, proceeding or other action against Tenant or any guarantor of Tenant's obligations hereunder shall be commenced seeking to have an order for relief entered against it as debtor, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of an order for relief against it which is not fully stayed within seven (7) business days after the entry thereof or (ii) remains undismissed for a period of forty-five (45) days. B. REMEDIES. Upon any Event of Default, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law, to which Landlord may resort cumulatively, or in the alternative: 10 1. RECOVERY OF RENT. Landlord shall be entitled to keep this Lease in full force and effect (whether or not Tenant shall have abandoned the Premises) and to enforce all of its rights and remedies under this Lease, including the right to recover rent and other sums as they become due, plus interest at the Permitted Rate (as defined in Paragraph 33 below) from the due date of each installment of rent or other sum until paid. 2. TERMINATION. Landlord may terminate this Lease by giving Tenant written notice of termination. On the giving of the notice all of Tenant's rights in the Premises and the Building and Parcel shall terminate. Upon the giving of the notice of termination, Tenant shall surrender and vacate the Premises in the condition required by Paragraph 34, and Landlord may re-enter and take possession of the Premises and all the remaining improvements or property and eject Tenant or any of Tenant's subtenants, assignees or other person or persons claiming any right under or through Tenant or eject some and not others or eject none. This Lease may also be terminated by a judgement specifically providing for termination. Any termination under this paragraph shall not release Tenant from the payment of any sum then due Landlord or from any claim for damages or rent previously accrued or then accruing against Tenant. In no event shall any one or more of the following actions by Landlord constitute a termination of this Lease: a. maintenance and preservation of the Premises; b. efforts to relet the Premises; c. appointment of a receiver in order to protect Landlord's interest hereunder; d. consent to any subletting of the Premises or assignment of this Lease by Tenant, whether pursuant to provisions hereof concerning subletting and assignment or otherwise; or e. any other action by Landlord or Landlord's agents intended to mitigate the adverse effects from any breach of this Lease by Tenant. 3. DAMAGES. In the event this Lease is terminated pursuant to Subparagraph 15.B.2 above, or otherwise, Landlord shall be entitled to damages in the following sums: a. the worth at the time of award of the unpaid rent which has been earned at the time of termination; plus b. the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus c. the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and d. any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom including, without limitation, the following: (i) expenses for cleaning, repairing or restoring the Premises; (ii) expenses for altering, remodeling or otherwise improving the Premises for the 11 purpose of reletting, including installation of leasehold improvements (whether such installation be funded by a reduction of rent, direct payment or allowance to the succeeding lessee, or otherwise); (iii) real estate broker's fees, advertising costs and other expenses of reletting the Premises; (iv) costs of carrying the Premises such as taxes and insurance premiums thereon, utilities and security precautions; (v) expenses in retaking possession of the Premises; (vi) attorneys' fees and court costs; and (vii) any unamortized real estate brokerage commission paid in connection with this Lease. e. The "worth at the time of award" of the amounts referred to in Subparagraphs (a) and (b) of this Paragraph, is computed by allowing interest at the Permitted Rate. The "worth at the time of award" of the amounts referred to in Subparagraph (c) of this Paragraph is computed by discounting such amount at the discount rate of the Federal Reserve Board of San Francisco at the time of award plus one percent (1%). The term "rent" as used in this Paragraph shall include all sums required to be paid by Tenant to Landlord pursuant to the terms of this Lease. 16. DESTRUCTION. In the event that any portion of the Premises are destroyed or damaged by an uninsured peril, Landlord or Tenant may, upon written notice to the other, given within thirty (30) days after the occurrence of such damage or destruction, elect to terminate this Lease; provided, however, that either party may, within thirty (30) days after receipt of such notice, elect to make any required repairs and/or restoration at such party's sole cost and expense, in which event this Lease shall remain in full force and effect, and the party having made such election to restore or repair shall thereafter diligently proceed with such repairs and/or restoration. In the event the Premises are damaged or destroyed from any insured peril to the extent of fifty percent (50%) or more of the then replacement cost of the Premises, Landlord may, upon written notice to Tenant, given within thirty (30) days after the occurrence of such damage or destruction, elect to terminate this Lease. If Landlord does not give such notice in writing within such period, Landlord shall be deemed to have elected to rebuild or restore the Premises, in which event Landlord shall, at its expense, promptly rebuild or restore the Premises to their condition prior to the damage or destruction and Tenant shall pay to Landlord upon commencement of reconstruction the amount of any deductible from the insurance policy. In the event the Premises are damaged or destroyed from any insured peril to the extent of less than fifty percent (50%) of the then replacement cost of the Premises, Landlord shall, at Landlord's expense, promptly rebuild or restore the Premises to their condition prior to the damage or destruction and Tenant shall pay to Landlord upon commencement of reconstruction the amount of any deductible from the insurance policy. In the event that, pursuant to the foregoing provisions, Landlord is to rebuild or restore the Premises, Landlord shall, within thirty (30) days after the occurrence of such damage or destruction, provide Tenant with written notice of the time required for such repair or restoration. If such period is longer than NINETY (90) days from the issuance of a building permit, WHICH TIME FOR RECEIPT OF A BUILDING PERMIT SHALL NOT EXCEED TWENTY (20) DAYS, Tenant may, within thirty (30) days after receipt of Landlord's notice, elect to terminate the Lease by giving written notice to Landlord of such election, whereupon the Lease shall immediately terminate. IF LANDLORD UNDERTAKES SUCH REPAIRS AND IS NOT COMPLETED WITHIN ONE HUNDRED TWENTY (120) DAYS, TENANT HAS THE RIGHT TO TERMINATE THE LEASE, UPON WRITTEN NOTICE TO LANDLORD. The period of time for Landlord to complete the repair or restoration shall be extended for delays caused by the fault or neglect of Tenant or because of acts of God, acts of publication, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of 12 contractors or subcontractors, or delay of contractors or subcontractors due to such causes, or other contingencies beyond the control of Landlord. Landlord's obligation to repair or restore the Premises shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect; provided, however, that during any period of repairs or restoration, rent and all other amounts to be paid by Tenant on account of the Premises and this Lease shall be abated in proportion to the area of the Premises rendered not reasonably suitable for the conduct of Tenant's business thereon. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the California Civil Code. 17. CONDEMNATION A. DEFINITION OF TERMS. For the purposes of this Lease, the term (1) "Taking" means a taking of the Premises or damage to the Premises related to the exercise of the power of eminent domain and includes a voluntary conveyance, in lieu of court proceedings, to any agency, authority, public utility, person or corporate entity empowered to condemn property; (2)"Total Taking" means the taking of the entire Premises or so much of the Premises as to prevent or substantially impair the use thereof by Tenant for the uses herein specified; provided, however, in no event shall a Taking of less than ten percent (10%) of the Premises be deemed a Total Taking; (3)"Partial Taking" means the taking of only a portion of the Premises which does not constitute a Total Taking; (4)"Date of Taking" means the date upon which the title to the Premises, or a portion thereof, passes to and vests in the condemnor or the effective date of any order for possession if issued prior to the date title vests in the condemnor; and (5)"Award" means the amount of any award made, consideration paid, or damages ordered as a result of a Taking. B. RIGHTS. The parties agree that in the event of a Taking all rights between them or in and to an Award shall be as set forth herein and Tenant shall have no right to any Award except as set forth herein. C. TOTAL TAKING. In the event of a Total Taking during the term hereof (1) the rights of Tenant under the Lease and the leasehold estate of Tenant in and to the Premises shall cease and terminate as of the Date of Taking; (2) Landlord shall refund to Tenant any prepaid rent; (3) Tenant shall pay Landlord any rent or charges due Landlord under the Lease, each prorated as of the Date of Taking; (4) Tenant shall receive from Landlord those portions of the Award attributable to trade fixtures of Tenant and for moving expenses of Tenant; and (5) the remainder of the Award shall be paid to and be the property of Landlord. D. PARTIAL TAKING. In the event of a Partial Taking during the term hereof (1) the rights of Tenant under the Lease and leasehold estate of Tenant in and to the portion of the Premises taken shall cease and terminate as of the Date of Taking; (2) from and after the Date of Taking the Monthly Installment of rent immediately prior to the Taking by a fraction, the numerator of which is the number of square feet contained in the Premises after the Taking and the denominator of which is the number of square feet contained in the Premises prior to the Taking; (3)Tenant shall receive from the Award the portions of the Award attributable to trade fixtures of Tenant; and (4) the remainder of the Award shall be paid to and be the property of Landlord. 18. MECHANICS' LIEN. Tenant shall (A) pay for all labor and services performed for, materials used by or furnished to, Tenant or any contractor employed by Tenant with respect to the Premises; (B) indemnify, defend, protect and hold Landlord and the Premises harmless and free from any liens, 13 claims, liabilities, demands, encumbrances, or judgements created or suffered by reason of any labor or services performed for, materials used by or furnished to, Tenant or any contractor employed by Tenant with respect to the Premises; (C) give notice to Landlord in writing five (5) days prior to employing any laborer or contractor to perform services related to, or receiving materials for use upon the Premises; and (D) permit Landlord to post a notice of nonresponsibility in accordance with the statutory requirements of California Civil Code Section 3094 or any amendment thereof. It the event Tenant is required to post an improvement bond with a public agency in connection with the above, Tenant agrees to include Landlord as an additional obligee. 19. INSPECTION OF THE PREMISES. Tenant shall permit Landlord and its agents to enter the Premises at any reasonable time, UPON REASONABLE NOTICE, for the purpose of inspecting the same, performing Landlord's maintenance and repair responsibilities, posting a notice of non-responsibility for alterations, additions or repairs and at any time within ninety (90) days prior to expiration of this Lease, to place upon the Premises, ordinary "For Lease" or "For Sale" signs. 20. COMPLIANCE WITH LAWS. Tenant shall, at its own cost, comply with all of the requirements of all municipal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to TENANT'S SPECIFIC use and occupancy of the Premises, and shall faithfully observe all municipal, county, state and federal law, statutes or ordinances now in force or which may hereafter be in force. The judgement of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such ordinance or statute in the use and occupancy of the Premises shall be conclusive of the fact that such violation by Tenant has occurred. 21. SUBORDINATION. The following provisions shall govern the relationship of this Lease to any underlying lease, mortgage or deed of trust which now or hereafter affects the Premises, the Building and/or the Parcel, or Landlord's interest or estate therein (the "Project") and any renewal, modification, consolidation, replacement, or extension thereof (a "Security Instrument"). A. PRIORITY. This Lease is subject and subordinate to Security Instruments existing as of the Commencement Date. However, if any Lender so requires, this Lease shall become prior and superior to any such Security Instrument. B. SUBSEQUENT SECURITY INSTRUMENTS. At Landlord's election, this Lease shall become subject and subordinate to any Security Instrument created after the Commencement Date. Notwithstanding such subordination, THE HOLDER OF SUCH SECURITY INSTRUMENT SHALL AGREE IN WRITING, AS A CONDITION OF SUCH SUBORDINATION, THAT TENANT'S RIGHT TO QUIET POSSESSION OF THE PREMISES SHALL NOT BE DISTURBED SO LONG AS TENANT IS NOT IN DEFAULT AND PERFORMS ALL OF ITS OBLIGATIONS UNDER THIS LEASE, UNLESS THIS LEASE IS OTHERWISE TERMINATED PURSUANT TO ITS TERMS. C. DOCUMENTS. PROVIDED THAT THE CONDITION TO SUBORDINATION SPECIFIED IN PARAGRAPH 21.B IS SATISFIED, Tenant shall execute any document or instrument required by Landlord or any Lender to make this Lease either prior or subordinate to a Security Instrument, which may include such other matters as the Lender customarily requires in connection with such agreements, including provisions that the Lender not be liable for (1) the return of the Security Deposit unless the Lender receives it from Landlord, and (2) any defaults on the part of Landlord occurring prior to the time that the Lender takes possession of the Project in connection with the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within ten (10) days after written demand therefor shall constitute a default by Tenant. D. TENANT'S ATTORNMENT. Tenant shall attorn (1) to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any Security Instrument 14 encumbering the Project; (2) to grantee or transferee designated in any deed given in lieu of foreclosure; or (3) to the lessor under any underlying ground lease should such ground lease be terminated. E. LENDER. The term "Lender" shall mean (1) any beneficiary, mortgagee, secured party, or other holder of any deed of trust, mortgage, or other written security device or agreement affecting the Project; and (2) any lessor under any underlying lease under which Landlord holds its interest in the Project. 22. HOLDING OVER. This Lease shall terminate without further notice at the expiration of the Lease Term. Any holding over by Tenant after expiration shall not constitute a renewal or extension or give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after the expiration with the consent of Landlord shall be construed to be a tenancy from month to month, at ONE HUNDRED TWENTY-FIVE PERCENT (125%) of the monthly rent for the last month of the Lease Term, and shall otherwise be on the terms and conditions herein specified insofar as applicable. 23. NOTICES. Any notice required or desired to be given under this Lease shall be in writing with copies directed as indicated below and shall be personally served or given by mail OR OVERNIGHT DELIVERY. Any notice given by mail shall be deemed to have been given when forty-eight (48) hours have elapsed from the time such notice was deposited in the United States mails, certified and postage prepaid, addressed to the party to be served with a copy as indicated herein at the last address given by that party to the other party under the provisions of this Paragraph. At this date of execution of this Lease, the address of Landlord is: 511 Division Street Campbell CA 95008 and the address of Tenant is: 81 Vista Montana San Jose, California 95134 24. ATTORNEY'S FEES. In the event either party shall bring any action or legal proceeding for damages for any alleged breach of any provision of this Lease, to recover rent or possession of the Premises, to terminate this Lease, or to enforce, protect or establish any term or covenant of this Lease or right or remedy of either party, the prevailing party shall be entitled to recover as a part of such action or proceeding, reasonable attorneys' fees and court costs, including attorneys' fees and costs for appeal, as may be fixed by the court or jury. The term "prevailing party" shall mean the party who received substantially the relief requested, whether by settlement, dismissal, summary judgement, judgement, or otherwise. 25. NONASSIGNMENT. A. LANDLORD'S CONSENT REQUIRED. Tenant's interest in this Lease is not assignable, by operation of law or otherwise, nor shall Tenant have the right to sublet the Premises, transfer any interest of Tenant therein or permit any use of the Premises by another party, without the prior written consent of Landlord to such assignment, subletting, transfer or use, which consent Landlord agrees not to withhold unreasonably subject to the provisions of Subparagraph B below. A consent to one assignment, subletting, occupancy or use by another party shall not be deemed to be a consent to any subsequent assignment, subletting, occupancy or use by another party. Any assignment or subletting without such consent shall be void and shall, at the option of Landlord, terminate this Lease. 15 Landlord's waiver or consent to any assignment or subletting hereunder shall not relieve Tenant from any obligation under this lease unless the consent shall so provide. B. TRANSFEREE INFORMATION REQUIRED. If Tenant desires to assign its interest in this Lease or sublet the Premises, or transfer any interest of Tenant therein, or permit the use of the Premises by another party (hereinafter collectively referred to as a "Transfer"), Tenant shall give Landlord at least thirty (30) days prior written notice of the proposed Transfer and of the terms of such proposed Transfer, including, but not limited to, the name and legal composition of the proposed transferee, a financial statement of the proposed transferee, the nature of the proposed transferee's business to be carried on in the Premises, the payment to be made or other consideration to be given to Tenant on account of the Transfer, and such other pertinent information as may be requested by Landlord, all in sufficient detail to enable Landlord to evaluated the proposed Transfer and the prospective transferee. It is the intent of the parties hereto that this Lease shall confer upon Tenant only the right to use and occupy the Premises, and to exercise such other rights as are conferred upon Tenant by this Lease. The parties agree that this Lease is not intended to have a bonus value nor to serve as a vehicle whereby Tenant may profit by a future Transfer of this Lease or the right to use or occupy the Premises as a result of any favorable terms contained herein, or future changes in the market for leased space. It is the intent of the parties that any such bonus value that may attach to this Lease shall be and remain the exclusive property of Landlord. Accordingly, in the event Tenant seeks to Transfer its interest in this Lease or the Premises, Landlord shall have the following options, which may be exercised at its sole choice without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such proposed Transfer: (1) Landlord may elect to terminate this Lease effective as of the proposed effective date of the proposed Transfer and release Tenant from any further liability hereunder accruing after such termination date by giving Tenant written notice of such termination within twenty (20) days after receipt by Landlord of Tenant's notice of intent to transfer as provided above. If Landlord makes such election to terminate this Lease, Tenant shall surrender the Premises, in accordance with Paragraph 34, on or before the effective termination date; or (2) Landlord may consent to the proposed Transfer on the condition that Tenant agrees to pay to Landlord, as additional rent, any and all rents or other consideration (including key money) received by Tenant from the transferee by reason of such Transfer in excess of the rent payable by Tenant to Landlord under this Lease (less any brokerage commissions or advertising expenses incurred by Tenant in connection with the Transfer, INCLUDING TENANT IMPROVEMENT COSTS). Tenant expressly agrees that the foregoing is a reasonable condition for obtaining Landlord's consent to any Transfer; or (3) Landlord may reasonably withhold its consent to the proposed Transfer. 26. SUCCESSORS. The covenants and agreements contained in this Lease shall be binding on the parties hereto and on their respective heirs, successors and assigns (to the extent the Lease is assignable). 27. MORTGAGEE PROTECTION. In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee of a mortgage encumbering the Premises, whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effect a cure. 16 28. LANDLORD LOAN OR SALE. Tenant agrees promptly following request by Landlord to (A) execute and deliver to Landlord any documents, including estoppel certificates presented to Tenant by Landlord, (i) certifying that this Lease is unmodified and in full force and effect and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, and (iii) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by a deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord and (B) to deliver to Landlord the financial statement of TENANT IN FORM AND CONTENT GENERALLY PREPARED BY TENANT, including a balance sheet and profit and loss statement, for the last completed fiscal year all prepared in accordance with generally accepted accounting principles consistently applied. Tenant's failure to deliver an estoppel certificate within ten (10) days following such request shall be an Event of Default under this Lease, PROVIDED TENANT DOES NOT DELIVER SAID ESTOPPEL CERTIFICATE WITHIN FIVE (5) DAYS AFTER WRITTEN NOTICE OF DELINQUENCY. 29. SURRENDER OF LEASE NOT MERGER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenants, or operate as an assignment to Landlord of any or all such sublease or subtenants. 30. WAIVER. The waiver by Landlord or Tenant of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant or condition herein contained. 31. GENERAL. A. CAPTIONS. The captions and paragraph headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or extend the meaning of any part of this Lease, or be used to interpret specific sections. The word (s) enclosed in quotation marks shall be construed as defined terms for purposes of this Lease. As used in this Lease, the masculine, feminine and neuter and the singular or plural number shall each be deemed to include the other whenever the context so requires. B. DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease, so far as the covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner at the time in question of the fee title of the Premises, and in the event of any transfer or transfers of the title of such fee, the Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall after the date of such transfer or conveyance be automatically freed and relieved of all liability with respect to performance of any covenants or obligations on the part of Landlord contained in this Lease, thereafter to be performed; provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject as aforesaid, be binding upon each Landlord, its heirs, personal representatives, successors and assigns only during its respective period of ownership. C. TIME OF ESSENCE. Time is of the essence for the performance of each term, covenant and condition of this Lease. D. SEVERABILITY. In case any one or more of the provisions contained herein, except for the payment of rent, shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable 17 provision had not been contained herein. This Lease shall be construed and enforced in accordance with the laws of the State of California. E. JOINT AND SEVERAL LIABILITY. If Tenant is more than one person or entity, each such person or entity shall be jointly and severally liable for the obligations of Tenant hereunder. F. LAW. The term "law" shall mean any judicial decision, status, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any government agency or authority having jurisdiction over the parties to this Lease or the Premises or both, in effect at the Commencement Date of this Lease or any time during the Lease Term, including, without limitation, any regulation, order, or policy of any quasi-official entity or body (e.g., board of fire examiners, public utility or special district). G. AGENT. AS USED HEREIN THE TERM "AGENT" SHALL MEAN, WITH RESPECT TO EITHER LANDLORD OR TENANT, ITS RESPECTIVE AGENTS, EMPLOYEES, CONTRACTORS (AND THEIR SUBCONTRACTORS), AND INVITEES (AND IN THE CASE OF TENANT, ITS SUBTENANTS). H. WAIVER OF JURY TRIAL LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCALIM OR CROSS-COMPLAINT IN ANY ACTION PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT. INITIALS: /s/ ------------(LANDLORD) /s/ ------------(TENANT) 32. SIGN. Tenant shall not place or permit to be placed any sign or decoration on the land or the exterior of the Building without the prior written consent of Landlord, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD. Tenant, upon written notice by Landlord, shall immediately remove any sign or decoration that has placed or permitted to be placed on the land or the exterior of the Building without the prior written consent of Landlord, and if Tenant fails to so remove such sign or decoration within five (5) days after Landlord's written notice, Landlord may enter upon the Premises and remove said sign or decoration and Tenant agrees to pay Landlord, as additional rent upon demand, the COMMERCIALLY REASONABLE cost of such removal. At the termination of this Lease, Tenant shall remove any sign which it has placed on the Parcel or Building and shall repair any damage caused by the installation or removal of such sign. 33. INTEREST ON PAST DUE OBLIGATIONS. Any Monthly Installment of rent or any other sum due form Tenant under this Lease which is received by Landlord after the date the same is due shall bear interest from said due date until paid, at an annual rate equal to the lesser of (the "Permitted Rate"): (1) twelve percent (12%); or (2) five percent (5%) plus the rate established by the Federal Reserve Bank of San Francisco, as of the Twenty-fifth (25th) day of the month immediately preceding the due date, on advances to member banks under Section 13 and 13 (a) of the Federal Reserve Act, as now in effect or hereafter from time to time amended. Payment of such interest shall not excuse or cure any default by Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by Landlord in collection of such amounts. 18 34. SURRENDER OF THE PREMISES. On the last day of the term hereof, or on the sooner termination of this Lease, Tenant shall surrender the Premises to Landlord in their condition existing as of the Commencement Date of this Lease, EXCEPT AS PROVIDED IN PARAGRAPH 13 ABOVE AND EXHIBIT "E" ATTACHED HERETO, ordinary wear and tear excepted, with all originally painted interior walls washed and other interior walls cleaned, and repaired or replaced, all carpets shampooed and cleaned, the air conditioning and heating equipment serviced and repaired by a reputable and licensed service firm, all floors cleaned and waxed, all to the reasonable satisfaction of Landlord. Tenant shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed shall be deemed abandoned by Tenant. Tenant, at its sole cost, shall repair any damage to the Premises caused by the removal of Tenant's personal property, machinery and equipment, which repair shall include, without limitation, the patching and filling of holes and repair of structural damage. If the Premises are not so surrendered at termination of this Lease, Tenant shall indemnify, defend, protect and hold Landlord harmless from and against loss or liability resulting from delay by Tenant in so surrendering the Premises including without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 35. AUTHORITY. The undersigned parties hereby warrant that they have proper authority and are empowered to execute this Lease on behalf of Landlord and Tenant, respectively. 36. PUBLIC RECORD. This Lease is made subject to all matters of public record affecting title to the property of which the Premises are a part. Tenant shall abide by and comply with all private conditions, covenants and restrictions ("CC&R's") of public record now (TO LANDLORD'S KNOWLEDGE THERE ARE NO CURRENT CC&R's OF PUBLIC RECORD) or hereafter affecting the Premises and any amendment thereof, A COPY OF WHICH LANDLORD SHALL PROVIDE TO TENANT. All assessments and charges which are imposed, levied or assessed against the Parcel and Buildings pursuant to the above-described covenants, conditions and restrictions shall be a Common Area Charge and Tenant shall pay its share of such assessments and charges to Landlord as provided in Paragraph 12 above. 37. BROKERS. Each party represents and warrants to the other that there are no brokerage commissions or fees payable in connection with this Lease, except to the Commercial Property Services Company ("CPS") and, with the exception of CPS, each party hereby agrees to indemnify and hold the other harmless from and against any brokerage commissions or fee, obligation, claim or damage (including reasonable attorneys' fees) paid or incurred by the other party as a result of a breach of this Paragraph 37. This indemnity shall survive the expiration or sooner termination of this Lease. 38. LIMITATION ON LANDLORD'S LIABILITY. Tenant, for itself and its successors and assigns (to the extent this Lease is assignable), hereby agrees that in the event of any actual, or alleged, breach or default by Landlord under this lease that: (A) Tenant's sole and exclusive remedy against Landlord shall be as against Landlord's interest in the Building; B) No partner or officer of any partner of Landlord shall be sued or named as a party in a suit or action (except as may be necessary to secure jurisdiction of the partnership); C) No service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); D) No partner of Landlord shall be required to answer or otherwise plead to any service of process; E) No Judgment will be taken against any partner of Landlord; 19 F) Any judgment taken against any partner of Landlord maybe vacated and set aside at any time nunc pro tunc; G) No writ of execution will ever be levied against the assets of any partner of Landlord; H) The covenants and agreements of Tenant set forth in this Section 38 shall be enforceable by Landlord and any partner of Landlord. 39. HAZARDOUS MATERIAL. A. DEFINITIONS. AS USED HEREIN, THE TERM "HAZARDOUS MATERIAL" SHALL MEAN ANY SUBSTANCE: (i) THE PRESENCE OF WHICH REQUIRES INVESTIGATION OR REMEDIATION UNDER ANY FEDERAL, STATE OR LOCAL STATUTES, REGULATION, ORDINANCE, ORDER, ACTION, POLICY OR COMMON LAW; (ii) WHICH IS OR BECOMES DEFINED "HAZARDOUS WASTE," "HAZARDOUS SUBSTANCE," POLLUTANT OR CONTAMINANT UNDER ANY FEDERAL, STATE OR LOCAL STATUTE, REGULATION, RULE OR ORDINANCE OR AMENDMENTS THERETO INCLUDING, WITHOUT LIMITATION, THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT (42 U.S.C. SECTION 9601 ET SEQ.) AND/OR THE RESOURCE CONSERVATION AND RECOVERY ACT (42 U.S.C. SECTION 6901 ET SEQ.); (iii) WHICH IS TOXIC, EXPLOSIVE, CORROSIVE, FLAMMABLE, INFECTIOUS, RADIOACTIVE, CARCINOGENIC, MUTAGENIC, OR OTHERWISE HAZARDOUS AND IS OR BECOMES REGULATED BY ANY GOVERNMENTAL AUTHORITY, AGENCY, DEPARTMENT, COMMISSION, BOARD, AGENCY, OR INSTRUMENTALITY OF THE UNITED STATES, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF; (iv) THE PRESENCE OF WHICH ON THE PREMISES CAUSES OR THREATENS TO CAUSE A NUISANCE UPON THE PREMISES OR TO ADJACENT PROPERTIES OR POSES OR THREATENS TO POSE A HAZARD TO THE HEALTH OR SAFETY OF PERSONS ON OR ABOUT THE PREMISES; (v) THE PRESENCE OF WHICH ON ADJACENT PROPERTIES COULD CONSTITUTE A TRESPASS TO LANDLORD OR TENANT; (vi) WITHOUT LIMITATION WHICH CONTAINS GASOLINE, DIESEL FUEL, OR OTHER PETROLEUM HYDROCARBONS; (vii) WITHOUT LIMITATION WHICH CONTAINS POLYCHLORINATED BIPHENYLS (PCBs), ASBESTOS OR UREA FORMALDEHYDE FOAM INSULATION; OR (viii) WITHOUT LIMITATION RADON GAS. B. LANDLORD'S INDEMNITY. LANDLORD SHALL INDEMNIFY, DEFEND, PROTECT AND HOLD TENANT HARMLESS FROM AND AGAINST ALL LIABILITIES, CLAIMS, PENALTIES, FINES, RESPONSE COSTS AND OTHER EXPENSES (INCLUDING, BUT LIMITED TO, REASONABLE ATTORNEYS' FEES AND CONSULTANTS' FEES AND COSTS) ARISING OUT OF, RESULTING FROM, OR CAUSED BY ANY HAZARDOUS MATERIAL USED, GENERATED DISCHARGED, TRANSPORTED TO OR FROM, STORED OR DISPOSED OF BY LANDLORD OR ITS AGENTS IN, ON, UNDER, OVER, THROUGH OR ABOUT THE PREMISES AND/OR THE SURROUNDING REAL PROPERTY. C. PERMITTED USE. SUBJECT TO THE COMPLIANCE BY TENANT WITH THE PROVISIONS OF SUBPARAGRAPHS D, E, F, G, I, J AND K BELOW, TENANT SHALL BE PERMITTED TO USE AND STORE ON THE PREMISES THOSE HAZARDOUS MATERIALS LISTED IN EXHIBIT "F" ATTACHED HERETO IN THE QUANTITIES ATTACHED SET FORTH IN EXHIBIT "F". D. HAZARDOUS MATERIAL MANAGEMENT PLAN. PRIOR TO TENANT USING, HANDLING, TRANSPORTING OR STORING ANY HAZARDOUS MATERIAL AT OR ABOUT THE PREMISES (INCLUDING, WITHOUT LIMITATION, THOSE LISTED IN EXHIBIT "F"), TENANT SHALL SUBMIT TO LANDLORD A HAZARDOUS MATERIALS MANAGEMENT PLAN ("HMMP") FOR LANDLORD'S REVIEW AND APPROVAL, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD. THE HMMP SHALL DESCRIBE: (i) THE QUANTITIES OF EACH MATERIAL TO BE USED, (ii) THE PURPOSE FOR WHICH EACH MATERIAL IS TO BE USED, (iii) THE METHOD OF STORAGE OF EACH MATERIAL, (iv) THE METHOD OF TRANSPORTING EACH MATERIAL TO AND FROM THE PREMISES AND WITHIN THE PREMISES, (v) THE METHODS TENANT WILL EMPLOY TO MONITOR THE USE OF THE MATERIAL AND TO DETECT ANY LEAKS OR POTENTIAL HAZARDS, AND (vi) ANY OTHER INFORMATION ANY DEPARTMENT OF ANY GOVERNMENTAL ENTITY (CITY, STATE OR FEDERAL) REQUIRES PRIOR TO THE ISSUANCE OF ANY REQUIRED PERMIT FOR THE PREMISES OR DURING TENANT'S OCCUPANCY OF THE PREMISES. LANDLORD MAY, BUT SHALL HAVE NO OBLIGATION TO 20 REVIEW AND APPROVE THE FOREGOING INFORMATION AND HMO, AND SUCH REVIEW AND APPROVAL OR FAILURE TO REVIEW AND APPROVE SHALL NOT ACT AS AN ESTOPPEL OR OTHERWISE WAIVE LANDLORD'S RIGHTS UNDER THIS LEASE OR RELIEVE TENANT OF ITS OBLIGATIONS UNDER THIS LEASE. IF LANDLORD DETERMINES IN GOOD FAITH BY INSPECTION OF THE PREMISES OR REVIEW OF THE HMMP THAT METHODS IN USE OR DESCRIBED BY TENANT ARE NOT ADEQUATE IN LANDLORD'S GOOD FAITH JUDGEMENT TO PREVENT OR ELIMINATE THE EXISTENCE OF ENVIRONMENTAL HAZARDS, THEN TENANT SHALL NOT USE, HANDLE, TRANSPORT, OR STORE SUCH HAZARDOUS MATERIALS AT OR ABOUT THE PREMISES UNLESS AND UNTIL SUCH METHODS ARE APPROVED BY THE LANDLORD IN GOOD FAITH AND ADDED TO AN APPROVED HMMP. ONCE APPROVED BY LANDLORD, TENANT SHALL STRICTLY COMPLY WITH THE HMMP AND SHALL NOT CHANGE ITS USE, OPERATIONS OR PROCEDURES WITH RESPECT TO HAZARDOUS MATERIALS WITHOUT SUBMITTING AN AMENDED HMMP FOR LANDLORD'S REVIEW AND APPROVAL AS PROVIDED ABOVE. E. USE RESTRICTIONS. EXCEPT AS SPECIFICALLY ALLOWED IN SUBPARAGRAPH C ABOVE, TENANT SHALL NOT CAUSE OR PERMIT ANY HAZARDOUS MATERIAL TO BE USED, STORED, GENERATED, DISCHARGED, TRANSPORTED TO OR FROM, OR DISPOSED OF IN OR ABOUT THE PREMISES, OR ANY OTHER LAND OR IMPROVEMENT IN THE VICINITY OF THE PREMISES. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TENANT, AT ITS SOLE COST, SHALL COMPLY WITH ALL LAWS RELATING TO THE STORAGE, USE, GENERATION, TRANSPORT, DISCHARGE AND DISPOSAL BY TENANT OR ITS AGENTS OF ANY HAZARDOUS MATERIAL. IF THE PRESENCE OF ANY HAZARDOUS MATERIAL ON THE PREMISES CAUSED OR PERMITTED BY TENANT OR ITS AGENTS RESULTS IN CONTAMINATION OF THE PREMISES OR ANY SOIL, AIR, GROUND OR SURFACE WATERS UNDER, THROUGH, OVER, ON, IN OR ABOUT THE PREMISES, TENANT AT ITS EXPENSE, SHALL PROMPTLY TAKE ALL ACTIONS NECESSARY TO RETURN THE PREMISES AND/OR THE SURROUNDING REAL PROPERTY TO THE CONDITION EXISTING PRIOR TO THE APPEARANCE OF SUCH HAZARDOUS MATERIAL. F. TENANT INDEMNITY. TENANT SHALL DEFEND, PROTECT, HOLD HARMLESS AND INDEMNIFY LANDLORD AND ITS AGENTS AND LENDERS WITH RESPECT TO ALL ACTIONS, CLAIMS, LOSSES (INCLUDING, DIMINUTION IN VALUE OF THE PREMISES),FINES, PENALTIES, FEES,(INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEYS' AND CONSULTANTS' FEES AND COSTS) COSTS, DAMAGES, LIABILITIES, REMEDIATION COSTS, INVESTIGATIONS COSTS, RESPONSE AND OTHER EXPENSES ARISING OUT OF, RESULTING FROM, OR CAUSED BY ANY HAZARDOUS MATERIAL USED, GENERATED DISCHARGED, TRANSPORTED TO OR FROM, STORED, OR DISPOSED OF BY TENANT OR ITS AGENTS IN, ON, UNDER, OVER, THROUGH OR ABOUT THE PREMISES AND/OR THE SURROUNDING REAL PROPERTY. TENANT SHALL NOT SUFFER ANY LIEN TO BE RECORDED AGAINST THE PREMISES AS A CONSEQUENCE FOR THE DISPOSAL OF ANY HAZARDOUS MATERIAL ON THE PREMISES BY THE TENANT OR ITS AGENTS, INCLUDING ANY SO CALLED STATE, FEDERAL OR LOCAL "SUPER FUND" LIEN RELATED TO THE "CLEAN UP" OF ANY HAZARDOUS MATERIAL IN, OVER, ON, UNDER THROUGH, OR ABOUT THE PREMISES. G. COMPLIANCE. TENANT SHALL IMMEDIATELY NOTIFY LANDLORD OF ANY INQUIRY, TEST, INVESTIGATION, ENFORCEMENT PROCEEDING BY OR AGAINST TENANT OR THE PREMISES CONCERNING ANY HAZARDOUS MATERIAL. ANY REMEDIATION PLAN PREPARED BY OR ON BEHALF OF TENANT MUST BE SUBMITTED TO LANDLORD PRIOR TO CONDUCTING ANY WORK PURSUANT TO SUCH PLAN AND PRIOR TO SUBMITTAL TO ANY APPLICABLE GOVERNMENT AUTHORITY AND SHALL BE SUBJECT TO LANDLORD'S CONSENT. TENANT ACKNOWLEDGES THAT LANDLORD, AS THE OWNER OF THE PROPERTY, AT ITS ELECTION, SHALL HAVE THE SOLE RIGHT TO NEGOTIATE, DEFEND, APPROVE AND APPEAL ANY ACTION TAKEN OR ORDER ISSUED WITH REGARD TO ANY HAZARDOUS MATERIAL BY ANY APPLICABLE GOVERNMENT AUTHORITY. H. ASSIGNMENT AND SUBLETTING. IT SHALL NOT BE UNREASONABLE FOR LANDLORD TO WITHHOLD ITS CONSENT TO ANY PROPOSED ASSIGNMENT OR SUBLETTING IF (i) THE PROPOSED ASSIGNEE'S OR SUBTENANT'S ANTICIPATED USE OF THE PREMISES INVOLVES THE STORAGE, GENERATION, DISCHARGE, 21 TRANSPORT, USE OR DISPOSAL OF ANY HAZARDOUS MATERIAL NOT PERMITTED UNDER SUBPARAGRAPH C ABOVE; (ii) IF THE PROPOSED ASSIGNEE OR SUBTENANT HAS BEEN REQUIRED BY ANY PRIOR LANDLORD, LENDER, OR GOVERNMENT AUTHORITY TO "CLEAN UP" OR REMEDIATE ANY HAZARDOUS MATERIAL AND HAS FAILED TO PROMPTLY DO SO; (iii) IF THE PROPOSED ASSIGNEE OR SUBTENANT IS SUBJECT TO INVESTIGATION OR ENFORCEMENT ORDER OR PROCEEDING BY ANY GOVERNMENTAL AUTHORITY IN CONNECTION WITH THE USE, GENERATION, DISCHARGE, TRANSPORT, DISPOSAL OR STORAGE OF ANY MATERIAL AMOUNT OF HAZARDOUS MATERIAL; PROVIDED THAT (ii) AND (iii) WILL NOT APPLY IN THE CASE OF A FORTUNE 500 COMPANY. I. SURRENDER. UPON THE EXPIRATION OR EARLIER TERMINATION OF THE LEASE, TENANT, AT ITS SOLE COST, SHALL REMOVE ALL HAZARDOUS MATERIALS FROM THE PREMISES THAT TENANT OR ITS AGENTS INTRODUCED TO THE PREMISES. IF TENANT FAILS TO SO SURRENDER THE PREMISES, TENANT SHALL INDEMNIFY, PROTECT, DEFEND AND HOLD LANDLORD HARMLESS FROM AND AGAINST ALL DAMAGES RESULTING FROM TENANT'S FAILURE TO SURRENDER THE PREMISES AS REQUIRED BY THIS PARAGRAPH, INCLUDING, WITHOUT LIMITATION, ANY ACTIONS, CLAIMS, LOSSES, LIABILITIES, FEES (INCLUDING, BUT NOT LIMITED TO, REASONABLE ATTORNEY'S FEES AND CONSULTANTS' FEES AND COSTS),FINES, COSTS, PENALTIES, OR DAMAGES IN CONNECTION WITH THE CONDITION OF THE PREMISES INCLUDING, WITHOUT LIMITATION, DAMAGES OCCASIONED BY THE INABILITY TO RELET THE PREMISES OR A REDUCTION IN THE FAIR MARKET AND/OR RENTAL VALUE OF THE PREMISES BY REASON OF THE EXISTENCE OF ANY HAZARDOUS MATERIALS IN, ON OVER, UNDER, THROUGH OR AROUND THE PREMISES. J. RIGHT TO APPOINT CONSULTANT. LANDLORD SHALL HAVE THE RIGHT TO APPOINT A CONSULTANT TO CONDUCT AN INVESTIGATION TO DETERMINE WHETHER ANY HAZARDOUS MATERIAL IS BEING USED, GENERATED, DISCHARGED, TRANSPORTED TO OR FROM, STORED OR DISPOSED OF IN, ON, OVER, THROUGH, OR ABOUT THE PREMISES, IN AN APPROPRIATE AND LAWFUL MANNER. IF TENANT HAS VIOLATED ANY LAW OR COVENANT IN THIS LEASE REGARDING THE USE, STORAGE OR DISPOSAL OF HAZARDOUS MATERIALS ON OR ABOUT THE PREMISES, TENANT SHALL REIMBURSE LANDLORD FOR THE COST OF SUCH INVESTIGATION. TENANT, AT ITS EXPENSE, SHALL COMPLY WITH ALL REASONABLE RECOMMENDATIONS OF THE CONSULTANT REQUIRED TO CONFORM TENANT'S USE, STORAGE OR DISPOSAL OF HAZARDOUS MATERIALS TO THE REQUIREMENTS OF APPLICABLE LAW OR TO FULFILL THE OBLIGATIONS OF TENANT HEREUNDER. K. HOLDING OVER. IF ANY ACTION OF ANY KIND IS REQUIRED TO BE TAKEN BY ANY GOVERNMENTAL AUTHORITY TO CLEAN-UP, REMOVE, REMEDIATE OR MONITOR HAZARDOUS MATERIAL (THE PRESENCE OF WHICH IS THE RESULT OF THE ACTS OR OMISSIONS OF TENANT OR ITS AGENTS) AND SUCH ACTION IS NOT COMPLETED PRIOR TO THE EXPIRATION OR EARLIER TERMINATION OF THE LEASE, TENANT SHALL BE DEEMED TO HAVE IMPERMISSIBLY HELD OVER UNTIL SUCH TIME AS SUCH REQUIRED ACTION IS COMPLETED, AND LANDLORD SHALL BE ENTITLED TO ALL DAMAGES DIRECTLY OR INDIRECTLY INCURRED IN CONNECTION WITH SUCH HOLDING OVER, INCLUDING WITHOUT LIMITATIONS, DAMAGES OCCASIONED BY THE INABILITY TO RE-LET THE PREMISES OR A REDUCTION OF THE FAIR MARKET AND/OR RENTAL VALUE OF THE PREMISES. L. EXISTING ENVIRONMENTAL REPORTS. TENANT HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED, READ AND REVIEWED THE REPORTS AND TEST RESULTS DESCRIBED IN EXHIBIT "G" ATTACHED HERETO AND MADE A PART HEREOF (THE "EXISTING ENVIRONMENTAL REPORTS"). M. PROVISIONS SURVIVE REPORTS. THE PROVISIONS OF THIS PARAGRAPH 39 SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS LEASE. 22 N. CONTROLLING PROVISIONS. THE PROVISIONS OF THIS PARAGRAPH 39 ARE INTENDED TO GOVERN THE RIGHTS AND LIABILITIES OF THE LANDLORD AND TENANT HEREUNDER RESPECTING HAZARDOUS MATERIALS TO THE EXCLUSION OF ANY OTHER PROVISIONS IN THIS LEASE THAT MIGHT OTHERWISE BE DEEMED APPLICABLE. THE PROVISIONS OF THIS PARAGRAPH 39 SHALL BE CONTROLLING WITH REPECT TO ANY PROVISIONS IN THIS LEASE THAT ARE INCONSISTENT WITH THIS PARAGRAPH 39. 40. OPTION TO EXTEND. Tenant shall be granted on (1) option to extend the term of this lease through and including October 29, 1998. Such extension to be on the same terms and conditions as the initial term, including the Base Monthly Rent. It shall be a precedent to the exercise of this option that Tenant shall not be in default under this Lease, BEYOND ANY APPLICABLE CURE PERIOD, at the time of the exercise of the option. Tenant shall exercise said option only by written notice delivered to exercise of the option. Tenant shall exercise said option only by written notice delivered to Landlord at least ONE HUNDRED TWENTY (120) days prior to the expiration of the original term of this lease. 41. RIGHTS OF FIRST REFUSAL. A. In the event this Lease is in full force and effect and provided Tenant is not in default under the terms and conditions of the Lease, BEYOND ANY APPLICABLE CURE PERIOD, Landlord hereby grants Tenant the Right of First Refusal (First Right), second to AG Associates' Option to Expand, the premises as defined herein. Said First Right shall be secondary to AG Associates Option to Expand, as defined in their lease dated July 21, 1995. B. Furthermore, Tenant shall have the Right of First Refusal ("Second Right") to lease any space designated in Exhibit A, as "site plan", Landlord shall notify Tenant in writing of the terms for which Landlord is willing to lease the subject premises. C. The foregoing rights shall be contingent upon Tenant's responding to Landlord in writing of Tenant's intent to exercise said right(s) of first refusal within TWO (2) BUSINESS DAYS of notification to Tenant by Landlord of an impending offer on said subject premises. Tenant shall have two (2) BUSINESS DAYS to accept the terms and conditions as written by Landlord and to agree in writing to lease the subject premises. If Landlord has not received a written response to lease the subject premises from Tenant within TWO (2) BUSINESS DAYS of Tenant's receipt of an offer from Landlord, then it shall be deemed that Tenant is waiving its right to lease the subject space, and Landlord will be free to lease to the original offering party, on the same terms and conditions as were originally offered to Tenant. 23 D. Neither Right of First Refusal, as outlined above, shall apply to extensions of leases for space with Tenants who are in occupancy of buildings designated in the Exhibit A site plan as of the commencement date of this Lease (the "Existing Leases"). As of the date of this Lease, the tenants under Existing Leases are: Reply Corporation and AG Associates, Inc. Only AG Associates ha sa right to lease 4415 Fortran Court, which is superior to the Rights of First Refusal granted to Tenant herein. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set forth below. TENANT: LANDLORD: Novellus Systems, Inc., a California South Bay/Fortran, a California corporation limited partnership By: /s/ Unintelligible By: /s/ Unintelligible ------------------------------ ------------------------------ Title: Treasurer Title: General Partner --------------------------- --------------------------- Dated: 1/31/96 Dated: 1/31/96 --------------------------- --------------------------- 24 San Jose Technology Park Office/R&D/Manufacturing Space, [MAP] [LOGO] EXHIBIT "B" LEGAL DESCRIPTION: All that real property situate in the City of San Jose, County of Santa Clara, State of California, described as follows: Beginning at the Southwesterly corner of that certain 31.74 acre tract of land described in the deed from The First National Bank of San Jose, a corporation, to F. W. Zanker and Curtner Zanker, dated May 5, 1939, recorded May, 8, 1939 in Book 934 Official Records, page 16, Santa Clara County Records, in the Northerly line Alviso-Milpitas Road, thence from said point of beginning N. 89 deg. 35' E. 630.30 feet to the Southeasterly corner thereof; thence along the Easterly line of said 31.74 acre tract for the three following courses and distances: N. 1 deg. 13' E. 768.90 feet, N. 0 deg. 57' E. 597.96 feet and N. 0 deg. 31' E. 149.97 feet to the Southeasterly corner of that certain 9.316 acre tract of land described in the deed from F. W. Zanker, et al, to B. S. Brazil, a single man, dated October 25, 1943, recorded November 16, 1943 in Book 1176 Official Records, page 21, Santa Clara County Records; thence S. 89 deg. 35' W. along the Southerly line of said 9.316 acre tract 651.78 feet to the Southwesterly corner thereof in the Westerly line of said 31.74 acre tract; thence S. 0 deg. 08' W. along said last mentioned line 1512.88 feet to the point of beginning. Excepting therefrom that portion thereof conveyed to the City of San Jose, a municipal corporation, recorded September 2, 1985 in Book J828, page 1719, Official Records, described as follows: Beginning at the Southeasterly corner of that certain 31.74 acre tract of land described in the deed from the First National Bank of San Jose, a corporation, to F. W. Zanker and Curtner Zanker, dated May 5, 1939, recorded May 8, 1939 in Book 934 Official Records, page 16, Santa Clara County Records, said point being on the Northerly line of Alviso-Milpitas Road, thence leaving said point of beginning along the Easterly line of said 31.74 acre parcel N. 1 deg. 13' E. 30.00 feet to the true point of beginning of the parcel herein being described; thence leaving said true point of beginning and said Easterly line along the following courses and distances; From a tangent bearing of N. 88 deg. 47' 00" W. along a curve to the right with a radius of 50.00 feet, through a central angle of 126 deg. 52' 12" for an arc length of 110.71 feet to a point on reverse curvature; from a tangent bearing of N. 38 deg. 05' 12" E. along a curve to the left with a radius of 50.00 feet, through a central angle of 36 deg. 52' 12" for an arc length of 32.18 feet; N. 1 deg. 13' 00" E. 361.13 feet; N. 0 deg. 57' 00" E. 597.93 feet; N. 0 deg. 31' 52" E. 18.69 feet; along a tangent curve to the left with a radius of 40.00 feet, through a central angle of 90 deg. 56' 58" for an arc length of 63.50 feet to a point on a line parallel with and distant 90.00 feet Southerly, measured at right angles from the Southerly line of that certain 9.316 acre parcel of land described in the deed from F. W. Zanker, et al, to B. S. Brazil, recorded November 16, 1943 in Book 1176 of Official Records, at page 21, Santa Clara County Records; thence along said parallel line, S. 89 deg. 34' 54" W. 579.99 feet to a point on the Westerly line of said 31.74 acre parcel of land; thence leaving said parallel line along said Westerly line, No. 0 deg. 06' 10" E. 90.00 feet to the Southwesterly corner of the hereinabove described 9.316 acre parcel; thence leaving said Westerly line along the Southerly line of said 9.316 acre parcel, N. 89 deg. 34' 54" E. 651.24 feet to the Southeasterly corner thereof, said corner lying in said Easterly line of the hereinabove EXHIBIT "B" described 31.74 acre parcel; thence along said Easterly line the following course and distances: S. 0 deg. 31' 52" W. 149.98 feet; S. 0 deg. 57; 00" W. 598.11 feet and S. 1 deg. 13' 00" W. 598.11 feet and S. 1 deg. 13' 00" W. 471.20 feet to the true point of beginning. ALSO EXCEPTING THEREFROM all that portion conveyed to the State of California by Grant Deed recorded August 31, 1994 in Book N 579, Page 2028, Official Records, described as follows: Being a portion of that certain parcel of land described in the Deed from Ray H. Collishaw and Earlyn R. Collishaw, husband and wife, to William L. Marocco, a single man, recorded May 4, 1982 in Book G 762 of Official Records at Page 218, Santa Clara County Records. Beginning at the southeast corner of said parcel conveyed to Marocco; thence from said Point of Beginning, along the southerly line of said parcel conveyed to Marocco N. 89 deg. 01' 16" W. 626.45 feet to the southwest corner of said parcel conveyed to Marocco; thence along the westerly line of said parcel conveyed to Marocco N. 1 deg. 13' 13" E. 227.77 feet; thence leaving said westerly line, from a tangent bearing of S. 67 deg. 46' 42" E., along a curve to the right with a radius of 275.00 feet, through a central angle of 18 deg. 08' 37" for an arc length of 87.08 feet; thence S. 49 deg. 38' 05" E., 103.64 feet; thence along a tangent curve to the left with a radius of 275.00 feet, through a central angle of 34 deg. 57' 21" for an arc length of 167.78 feet; thence S. 84 deg. 35' 26" E. 318.98 feet to a point in the easterly line of said parcel conveyed to Marocco ng said easterly line S. 2 deg. 20' 03" W., 31.97 feet to the Point of Beginning. ARB No. 15-30-9 & 9.1 EXHIBIT "C" IMPROVEMENTS Prior to the commencement of the lease, Landlord shall be make the following improvements to the Premises ("Landlord's Improvements"): A) Replace ceiling insulation in rear manufacturing area; B) Replace areas of carpet that are worn and irreparably soiled; C) Repaint interior walls, as necessary; and, D) Repair any broken glass, cracks in tile floor of manufacturing area and make additional cosmetic repairs as reasonably necessary, to be agreed upon by Landlord in advance. Tenant shall be allowed to construct certain interior improvements (the "Improvements") in the Premises prior to the commencement of the Term of this Lease in accordance with the terms of Paragraph 13 of the Lease and in accordance with the plans which shall be approved by Landlord prior to commencement of construction and shall become an exhibit to the Lease hereto ("Approved Plans"). Landlord shall determine and notify Tenant prior to approval and commencement of construction of the Approved Plans, which Improvements Landlord will require Tenant to remove or return to original condition upon expiration or earlier termination of the Lease. EXHIBIT D FINAL TENANT IMPROVEMENT PLANS (To Be Provided) EXHIBIT E PLAN SHOWING IMPROVEMENTS TO BE RETURNED TO ORIGINAL CONDITION UPON LEASE EXPIRATION (To Be Provided) EXHIBIT F HAZARDOUS MATERIALS MANAGEMENT PLAN (To Be Provided by Tenant) EXHIBIT "G" 1. ATT report dated July 9, 1992: Preliminary (Phase I) Environmental Site Assessment Update for the Property at 4405 - 4445 Fortran Court, San Jose, California. (Project No. 929368). 2, SECOR International Incorporated report dated July 10, 1995: Phase I Environmental Site Assessment Report - 4405, 4415, 4425, 4435 and 4445 Fortran Drive, San Jose, CA (Job No. 70076-001-01). EX-10.34 10 EXHIBIT 10.34 [BLAIR PARK LETTERHEAD] Addendum to a Lease Agreement between East Williston Road Associates ("Landlord") and NOVELLUS, SYSTEMS, INC. ("Tenant") Dated: August 10, 1995 1. DESCRIPTION OF LEASED PREMISES. South Half, Second Floor Suite #12, Building 6, One Blair Park, Williston, Vermont. 2,580 Square Feet Net, 3,000 Square Feet Gross 2. LEASE TERM. 10/01/95 through 09/30/98 inclusive. 3. RENT. (a) From the commencement date through 09/30/98: $3,000.00 per month ($12.00 per square foot per year); (b) From through : $ per month ($ per square foot per year); (c) From through : $ per month ($ per square foot per year); 4. BASE YEAR FOR COMMON EXPENSES: 1996 5. TENANT'S PROPORTIONATE SHARE OF INCREASED COMMON EXPENSES: 16.7% 6. TENANT'S USE OF LEASED PREMISES: Office 7. AMOUNT OF TENANT'S SECURITY DEPOSIT. Existing Deposit of $833.00. 8. NAME AND ADDRESS FOR NOTICES TO TENANT. Novellus Systems, Inc. 81 Vista Montana San Jose, CA 95134-1510 9. MISCELLANEOUS. Landlord will complete interior Fit-up as per attached plan. All other terms and conditions remain as previously stated in the original lease dated May 1, 1990. 10. TENANT'S OPTION TO RENEW. Provided the Tenant has fully and faithfully performed and discharged all of its obligations under this lease and is not then default under any of the terms or conditions of this Lease and all rent required to be paid by Tenant has been paid in full, the Tenant shall have the option to renew this Lease for two (2) additional terms of three (3) years each, on the same terms and conditions herein set forth, except with respect to rights of renewal theretofore exercised and except as hereinafter set forth with respect to rent. Such option shall be exercised, if at all, by written notice from the Tenant to the Landlord not later than six (6) months prior to the expiration of the term of this Lease as then constituted. The rent payable during such renewal term shall be equal to the then-existing fair market rental value of the Premises at the time of such renewal, as mutually agreed upon by the Landlord and the Tenant, but in no event less than the rent in effect immediately prior to the effective date of such renewal. IN PRESENCE OF: EAST WILLISTON ROAD ASSOCIATES ("Landlord") /s/ Jeanne Mazza By: - ----------------------------------- ------------------------------------- NOVEllUS SYSTEMS, INC. ("Tenant") /s/ Thomas R Fog - ----------------------------------- ---------------------------------------- [FLOOR PLAN CHART] EX-10.37 11 EXHIBIT 10.37 [CORBALLY, GARTLAND AND RAPPLEYEA LETTERHEAD] August 4, 1995 Mr. John Root Novellus Systems Inc. 81 Vista Montana San Jose, CA 95134 RE: Lease - 25 Corporate Park Drive, Route 52, Town of East Fishkill, New York East Fishkill Corporate Park Investments with Novellus Systems Inc. Dear Mr. Root: Enclosed find two copies of the lease in the above matter. Please sign both copies and return them to me. Very truly yours, CORBALLY, GARTLAND & RAPPLEYEA /S/ Daniel F. Curtin Daniel F. Curtin DFC:sb encs. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LEASE dated August 14, 1995 --- between EAST FISHKILL CORPORATE PARK INVESTMENTS as Landlord and NOVELLUS SYSTEMS INC. as Tenant Affecting premises commonly known as 25 Corporate Park Drive, Route 52, in the Town of East Fishkill, New York. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CORBALLY.GARTLAND AND RAPPLEYEA - ATTORNEYS AND COUNSELORS AT LAW 35 MARKET STREET - POUGHKEEPSIE, NEW YORK 12601 - (914)454-1110 LEASE LEASE, dated August __, 1995, between EAST FISHKILL CORPORATE PARK INVESTMENTS., a partnership, having an address at 1400 Route 52 Suite 3, Hopewell Junction, New York 12533 ("Landlord"), and NOVELLUS SYSTEMS INC., having an address of 81 Vista Montana, San Jose, CA 95134, ("Tenant"). 1. THE DEMISED PREMISES AND LEASE TERM In consideration of the Rent hereinafter reserved and the terms, covenants and conditions set forth in this Lease to be observed and performed by Tenant, Landlord hereby demises and leases to Tenant, and Tenant hereby rents and takes from Landlord, the following property (collectively hereinafter referred to as the "Demised Premises"): Approximately 3016 square feet of the building located on 25 Corporate Park Drive, Route 52, Town of East Fishkill, New York as shown on the annexed diagram, together with parking in common with other users of the building. TO HAVE AND TO HOLD the Demised Premises unto Tenant, and the permitted successors and assigns of Tenant, upon and subject to all of the terms, covenants and conditions herein contained, for a term (the "Lease Term") of 38 Mos. commencing on or about November 1, 1995 and expiring on Dec. 30, 1998, unless the Lease Term shall sooner terminate pursuant to any of the conditional limitations or other provisions of this Lease. The commencement date shall be within forty-five (45) days of the delivery of executed Lease by the Tenant to the landlord setting forth their renovation requirements. 2. RENT Tenant covenants to pay to Landlord as Fixed Rent during the Lease Term $36,342.00 per annum. The Fixed Rent shall be payable in advance in equal monthly installments of $3,028.50 on the first day of each calendar month. If the Lease Term does not commence on the first day of a month, the Fixed Rent for the month in which the Lease Term commences shall be appropriately apportioned. Each date on which Fixed Rent is payable hereunder is hereinafter referred to as a "Rent Payment Date". 3. NO COUNTERCLAIM OR ABATEMENT All Rent shall be absolutely net to Landlord so that this Lease shall yield to Landlord the full amount of the installments 1 CORBALLY, GARTLAND AND RAPPLEYEA - ATTORNEYS AND COUNSELORS AT LAW 35 MARKET STREET - POUGHKEEPSIE, NEW YORK 12601 - (914)454-1110 thereof throughout the Lease Term without deduction. All Rent shall be paid to Landlord without notice, demand, counterclaim, setoff, deduction or defense, and nothing shall suspend, defer, diminish, abate or reduce any Rent, except as otherwise specifically provided in this Lease. 4. USE OF DEMISED PREMISES Tenant covenants that the Demised Premises shall be used solely for office purposes and for no other purposes, unless approved in writing by Landlord. Tenant shall not do or permit any act or thing which is contrary to any Legal Requirements or Insurance Requirements, or which might impair the value or usefulness of the Demised Premises or any part thereof. Tenant shall not do or suffer any waste, damage, disfigurement or injury to the Demised Premises. 5. CONDITION OF DEMISED PREMISES Prior to the commencement of the Lease Term, Landlord shall perform the work and make installments in the Demised Premises as set forth in Exhibit A hereto. 6. MAINTENANCE AND REPAIR Tenant, at all times during the Lease Term and at Tenant's expense, shall keep the Demised Premises, and all Improvements now or hereafter located thereon, in a good and clean order and condition and in such condition as may be required by all Legal Requirements and Insurance Requirements. Landlord shall be responsible for maintaining the HVAC, electrical and plumbing systems. 7. ALTERATIONS AND ADDITIONS Tenant shall not be entitled to make any alterations of or additions to the Demised Premises without the prior written consent of Landlord in each instance, which consent will not be unreasonably withheld. The title to all additions, repairs and replacements to any Improvements made during the Lease Term and any renewal thereof, forthwith shall vest in Landlord, and said Improvements, additions, repairs and replacements shall be and become the sole and absolute property of Landlord, without any obligation of payment by Landlord therefor. 2 CORBALLY, GARTLAND AND RAPPLEYEA - ATTORNEYS AND COUNSELORS AT LAW 35 MARKET STREET - POUGHKEEPSIE, NEW YORK 12601 - (914) 454-1110 8. COMPLIANCE WITH REQUIREMENTS Tenant, at all times during the Lease Term and at Tenant's expense, promptly and diligently shall: comply with all Legal Requirements and Insurance Requirements, whether or not compliance therewith shall require structural changes in the Improvements or interfere with the use and enjoyment of the Demised Premises or any part thereof; and procure, maintain and comply with all permits, licenses, franchises and other authorizations required for any use of the Demised Premises or any part thereof then being made, including without limitation all permits, licenses, and franchises which Tenant is required to obtain for the proper erection, installation, operation or maintenance of the Improvements or Tenant's Equipment or any part thereof. 9. LIENS Tenant shall not directly or indirectly create or permit to be created or to remain, and shall discharge, any mortgage, lien, security interest, encumbrance or charge on, pledge of or conditional sale or other retention agreement with respect to the Demised Premises or any part thereof, Tenant's interest therein, or any Fixed Rent or other Rent payable under this Lease, other than: the Occupancy Leases; liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested as permitted in Article 11 hereof; and the liens of mechanics, materialmen, suppliers or vendors, or right thereto, incurred in the ordinary course of business for sums which under the terms of the related contract are not at the time due, provided that adequate provision for the payment thereof shall have been made and provisions of the following paragraph are complied with. 10. UTILITY SERVICES Landlord shall pay charges for public or private utility services at any time rendered to or in connection with the entire Premises or any part thereof; including heat, air conditioning, electric, trash removal and water and sewer services. 11. INSURANCE Tenant, at all times during the Lease Term and at Tenant's expense, shall provide and maintain in full force and effect with insurers approved by Landlord: (a) public liability protecting Landlord against any and all liability occasioned by negligence, occurrence, accident or disaster in or about the 3 Demised Premises or any part thereof, (b) lessor shall be responsible for its own fire insurance. 12. INDEMNIFICATION BY TENANT Tenant shall, except for the wilful acts or omission of lessor, indemnify and hold Landlord harmless from and against all liabilities, obligations, claims, damages, fines, penalties, interest, causes of action, costs and expenses, including attorneys' fees (but excluding any income or excess profits or franchise taxes of Landlord determined on the basis of general income or revenue or any interest or penalties in respect thereof), imposed upon or incurred by or asserted against Landlord or the Demised Premises by reason of the occurrence or existence of any of the following: occupancy of the Demised Premises or any interest therein, or receipt of any rent or other sum therefrom; any accident, injury to or death of persons (including workers) or loss of or damage to property occurring, or claimed to have occurred, on or about the Demised Premises or any part thereof, or any Improvements now or hereafter erected thereon, or the adjoining sidewalks, curbs, vaults or vault spaces, if any, streets or ways, or appurtenances thereto; any use or condition of the Demised Premises or any part thereof, or any Improvements now or hereafter erect thereon, or the adjoining sidewalks, curbs, vaults and vault spaces, if any, streets or ways, or appurtenances thereto; any failure on the part of Tenant promptly and fully to comply with or perform any of the terms, covenants or conditions of this Lease; or performance of any labor or services or the furnishing of any materials or other property in respect of the Demised Premises or any part thereof. In the case any suit, action or proceeding is brought against Landlord or filed against the Demised Premises or any part thereof by reason of any such occurrence except for the wilful acts or omission of lessor, Tenant, upon Landlord's request and at Tenant's expense, shall resist and defend such suit, action or proceeding, or cause the same to be resisted and defended by counsel designated by Tenant and approved by Landlord. The obligations of Tenant under this Article 14 shall survive the expiration or termination of the Lease Term. 13. DAMAGE TO OR DESTRUCTION OF THE DEMISED PREMISES If there is any material damage to or destruction.of the Demised Premises or any part thereof, Tenant promptly shall give written notice thereof to Landlord, generally describing the nature and extent of such damage or destruction. Landlord shall have the option of either repairing the premises or terminating the lease. 4 14. TAKING OF THE DEMISED PREMISES If there is a Taking of the fee of the entire Demised Premises, other than for a temporary use, this Lease shall terminate as of the date of such Taking. 15. QUIET ENJOYMENT Landlord covenants that so long as Tenant is not in default hereunder in the payment of any Rent or compliance with or the performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be complied with or performed, Tenant shall not be hindered or molested by Landlord in Tenant's enjoyment of the Demised Premises. 16. RIGHT TO CURE TENANT'S DEFAULT If Tenant fails to make any payment or to comply with or perform any term, covenant or condition of this Lease to be complied with or performed by Tenant, Landlord may, but shall be under no obligation to, after thirty days' notice to Tenant (or upon shorter notice, or without notice, if necessary to meet an emergency situation or time limitation of a Legal Requirement), make such payment or perform or cause to be performed such work, labor, services, acts or things, and take such other steps as Landlord may deem advisable, to comply with any such term, covenant or condition which is in default. 17. EVENTS OF DEFAULT AND TERMINATION If any one or more of the following ("Events of Default") shall occur: (a) if Tenant shall fail to pay any Fixed Rent when as the same becomes due and payable, and such rent remains unpaid ten days after notice in writing from Landlord; or (b) if Tenant shall fail to comply with or perform any other term, covenant or condition hereof, and such failure shall continue for more than thirty days after notice thereof from Landlord, and Tenant within said period, subject to Unavoidable Delays, shall not commence with due diligence and dispatch the curing of such default, or, having so commenced, thereafter shall fail or neglect to prosecute or complete with due diligence and dispatch the curing of such default for reasons other than Unavoidable Delays; or 5 (c) if Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing Tenant's inability to pay Tenant's debts as they become due, or shall file a petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting, or shall fail to contest, the material allegations of a petition filed against Tenant in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or any material part of Tenant's properties; then, and in any such Event of Default, regardless of the pendency of any proceeding which has or might have the effect of preventing Tenant from complying with the terms, covenants or conditions of this Lease, Landlord, at any time thereafter may give a written termination notice to Tenant, and on the date specified in such notice this Lease shall terminate and the Lease Term shall expire and terminate by limitation, and all rights of Tenant under this Lease shall cease, unless before such date (i) all arrears of Rent (with interest at the rate of twelve percent per annum) and all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Landlord hereunder, shall have been paid by Tenant, and (ii) all other defaults at the time existing under this Lease shall have been fully remedied to the satisfaction of Landlord. Tenant shall reimburse Landlord for all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Landlord occasioned by or in connection with any default by Tenant under this Lease. 18. RELETTING At any time or from time to time after the repossession of the Demised Premises or any part thereof, whether or not the Lease Term shall have been terminated pursuant to Article 17, Landlord may (but shall be under no obligation to) relet the Demised Premises or any part thereof for the account of Tenant, for such term or terms (which may be greater than or less than the period which would otherwise have constituted the balance of the Lease Term) and on such conditions (which may include concessions or free rent) and for such uses as Landlord, in Landlord's absolute discretion, may determine, and may collect and receive the rents therefrom. Landlord shall not be responsible or liable for any failure to relet the Demised Premises or any part thereof or for any failure to collect any rent due upon any such reletting. 6 19. ASSIGNMENT OF SUBRENTS Tenant hereby irrevocably assigns to Landlord all rents due or to become due from any assignee of Tenant's interest hereunder and any sublessee or any tenant or occupant of the Demised Premises or any part thereof, together with the right to collect and receive such rents, provided that, so long as Tenant is not in default under this Lease, Tenant shall have the right to collect such rents for Tenant's own use and purposes. Upon any default by Tenant under this Lease, Landlord shall have absolute title to such rents and the absolute right to collect the same. Landlord shall apply to the Rent due under this Lease the net amount (after deducting all costs and expenses incident to the collection thereof and the operation and maintenance, including repairs, of the Demised Premises) of any rents so collected and received by Landlord. 20. SECURITY DEPOSIT Tenant has not deposited with Landlord any security. 21. SURVIVAL OF TENANT'S OBLIGATIONS AND DAMAGES No expiration or termination of the Lease Term pursuant to this Lease, by operation of law or otherwise (except as expressly provided herein), and no repossession of the Demised Premises or any part thereof pursuant to this Lease or otherwise, shall relieve Tenant of Tenant's obligations or liabilities hereunder, all of which shall survive such expiration, termination or repossession. 22. INJUNCTION Landlord, in addition to all other rights, powers and remedies and notwithstanding the concurrent pendency of summary or other dispossess proceedings, at Landlord's option, shall have the right at all times during the Lease Term to restrain by injunction any violation or attempted violation by Tenant of any of the terms, covenants or conditions of this Lease, and to enforce by injunction any of such terms, covenants or conditions. 23. WAIVERS No failure by Landlord or Tenant to insist upon the strict performance of and compliance with any term, covenant or condition hereof or to exercise or enforce any right, power or 7 remedy consequent upon a breach thereof, and no submission by Tenant or acceptance by Landlord of full or partial Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term, covenant or condition. No waiver of any breach of any term, covenant or condition of this Lease shall affect or alter this Lease, which shall continue in full force and effect, or the respective rights, powers or remedies of Landlord or Tenant with respect to any other then existing or subsequent breach. 24. LANDLORD'S REMEDIES CUMULATIVE All of the rights, powers and remedies of Landlord provided for in this Lease or now or hereafter existing at law or in equity, or by statute or otherwise, shall be deemed to be separate, distinct, cumulative and concurrent. 25. ASSIGNMENT, SUBLETTING AND MORTGAGES Tenant expressly covenants that Tenant shall not voluntarily or involuntarily assign, encumber, mortgage or otherwise transfer this Lease, or sublet the Demised Premises or any part thereof, or suffer or permit the Demised Premises or any part thereof to be used or occupied by others, by operation of law or otherwise, without the prior written consent of Landlord in each instance, not to be unreasonably withheld. Absent such consent, any act or instrument purporting to do any of the foregoing shall be null and void. 26. SUBORDINATION AND ATTORNMENT This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to all mortgages which may now or hereafter affect the Demised Premises, whether or not such mortgages shall also cover other lands or buildings, to each and every advance made or hereafter to be made under such mortgages and to all renewals, modifications, replacements, spreaders, consolidations and extensions of such mortgages, providing mortgagee agrees not to disturb lessee's right to occupy. In the event of any sale of the Demised Premises in a foreclosure of any such mortgage or the exercise by the holder of any such mortgages of any other remedies provided for by law or in such mortgage, Tenant, upon written request of the holder of the mortgage or the purchaser at such foreclosure or any person succeeding to the interest of the holder of the mortgage, shall attorn to such holder, purchaser or successor in interest, as the case may be, without change in the terms, covenants or conditions of this Lease. If such a request is made, this Lease shall not be 8 deemed to be terminated by any foreclosure proceedings or other remedies for the enforcement of the mortgage by such holder, purchaser or successor in interest. The provisions of this Article 30 shall be self-operative and no further instrument of subordination and/or attornment shall be required. In confirmation of such subordination and/or attornment, Tenant promptly shall execute and deliver at Tenant's expense any instrument that Landlord or the holder of any such mortgage may reasonably request to evidence such subordination and/or attornment. 27. ENTRY BY LANDLORD Landlord and the authorized representatives of Landlord shall have the right to enter the Demised Premises at all reasonable times for the purpose of inspecting the same or for the purpose of doing any work permitted to be done by Landlord under this Lease, and to take all such actions thereon as may be necessary or appropriate for any other purpose, as long as such entry does not interfere with lessee's occupancy and business use. 28. CONVEYANCE BY LANDLORD If the original or any successor Landlord shall convey or otherwise dispose of the Land and Improvements, Landlord shall thereupon be released from all obligations and liabilities of Landlord under this Lease (except those accruing prior to such conveyance or other disposition), and such obligations and liabilities shall be binding solely on the then owner of the Land and Improvements. 29. NO MERGER OF TITLE There shall be no merger of the leasehold estate created by this Lease with the fee estate in the Demised Premises by reason of the fact that the same person may own or hold (a) the leasehold estate created by this Lease or any interest therein, and (b) the fee estate in the Demised Premises or any interest in such fee estate. No such merger shall occur unless and until all persons having any interest in the leasehold estate created by this Lease, and in the fee estate in the Demised Premises, shall join in a written instrument effecting such merger and shall duly record the same. 30. ACCEPTANCE OF SURRENDER No modification, termination or surrender of this Lease or surrender of the Demised Premises or any part thereof or of any 9 interest therein by Tenant shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by any representative or agent of Landlord, other than such a written agreement and acceptance, shall constitute an acceptance thereof. 31. END OF LEASE TERM Upon the expiration or termination of the Lease Term, unless otherwise agreed between the parties hereto, Tenant shall quit, surrender and deliver to Landlord the Demised Premises with the Improvements thereon in good order and condition, ordinary wear and tear excepted, and shall remove all Tenant's Equipment therefrom. 32. BROKERAGE Landlord and Tenant each represents and warrants to the other that such party has not dealt with any broker or finder in connection with the Demised Premises or this Lease other than Serls Real Estate. Brokerage shall be paid by Landlord. 33. NOTICES All notices, demands, elections and other communications desired or required to be delivered or given under this Lease shall be in writing. 34. MISCELLANEOUS All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violate any applicable law, and are intended to be limited to the extent necessary so that they will not render this Lease invalid, unenforceable or not entitled to be recorded under any applicable law. Landlord and Tenant agree not to record this Lease. The headings in this Lease are for purposes of reference only and shall not limit or define the meaning hereof. This Lease may be changed or modified only by an instrument in writing signed by the party against which enforcement of such change or modification is sought. This Lease shall be binding upon and inure to the benefit 10 of and be enforceable by the respective successors and assigns of the parties hereto. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the date first above written. EAST FISHKILL CORPORATE PARK INVESTMENTS ATTEST: BY /s/ Frank Buyakowski ------------------------------------- Frank Buyakowski partner By /s/ Margaret Elizabeth -------------------------------- Secretary NOVELLUS SYSTEMS INC. ATTEST: By /s/ John P Root ------------------------------------- By -------------------------------- Secretary 11 EXHIBIT A Landlord shall modify the existing building (Exhibit I) pursuant to a plan (Exhibit II) which Exhibit II reflects the demised premises. Landlord shall provide for demolition of the existing space including the walls, raised floor computer room, and carpeting. Novellus retains option to choose color/print. Landlord shall construct or rearrange interior walls, electrical and HVAC fixtures, patch and paint. The Landlord will also be responsible for purchasing and installing new ceiling tiles, commercial grade 28 oz. level loop nylon carpeting, and 1/8 inch commercial tile. The Tenant shall be responsible for any telephone, computer or security systems installation. 12 [FLOOR PLAN CHART] Exhibit I [FLOOR PLAN CHART] Exhibit II EX-10.42 12 EXHIBIT 10.42 LEASE AGREEMENT BETWEEN OTR, AN OHIO GENERAL PARTNERSHIP on behalf of Landlord AND NOVELLUS SYSTEMS, INC. on behalf of Tenant DATED MAY 26, 1996 TABLE OF CONTENTS 1. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (a) BASE RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (b) ADDITIONAL RENTAL . . . . . . . . . . . . . . . . . . . . . . . 2 (i) OPERATING EXPENSES. . . . . . . . . . . . . . . . . . 2 (ii) REAL ESTATE TAXES . . . . . . . . . . . . . . . . . . 2 (c) PAYMENT OF PROPORTIONATE SHARE . . . . . . . . . . . . . . . . 3 (d) DISPUTE OF OPERATING EXPENSES. . . . . . . . . . . . . . . . . 3 (e) ADJUSTMENTS TO OPERATING EXPENSES. . . . . . . . . . . . . . . 4 (f) NO DECREASE IN BASE RENTAL . . . . . . . . . . . . . . . . . . 4 (g) OTHER CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . 4 (h) PLACE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 4 4. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (a) IMPROVEMENTS TO BE CONSTRUCTED . . . . . . . . . . . . . . . . 4 (b) WORK PRIOR TO COMMENCEMENT DATE. . . . . . . . . . . . . . . . 4 (c) AVAILABILITY OF PREMISES PRIOR TO COMMENCEMENT DATE. . . . . . 5 (d) SUBSTANTIAL COMPLETION . . . . . . . . . . . . . . . . . . . . 5 (e) CONDITION OF PREMISES. . . . . . . . . . . . . . . . . . . . . 5 (f) OVERLOAD . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (a) USE . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (b) ADVERTISEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 5 (c) SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . 5 (d) CARE . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (e) NOISE; ODORS . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (a) PROHIBITION. . . . . . . . . . . . . . . . . . . . . . . . . . 6 (b) INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 6 (c) COMPLIANCE AND SUPERVISION OF ALTERATIONS. . . . . . . . . . . 6 (d) LANDLORD'S PROPERTY. . . . . . . . . . . . . . . . . . . . . . 7 (e) WIRING . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7. MECHANICS' LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8. MAINTENANCE AND REPAIR. . . . . . . . . . . . . . . . . . . . . . . . 7 (a) TENANT'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . . 7 (b) LANDLORD'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . 8 (c) INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9. COMMON AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (a) GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (b) PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (c) RIGHT TO CHANGE COMMON AREAS . . . . . . . . . . . . . . . . . 8 i (10) BUILDING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (a) ELECTRIC . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (b) WATER . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (c) AIR-CONDITIONING AND HEAT. . . . . . . . . . . . . . . . . . . 9 (d) JANITOR SERVICE. . . . . . . . . . . . . . . . . . . . . . . . 9 (e) ELEVATOR SERVICE . . . . . . . . . . . . . . . . . . . . . . . 10 (f) INTERRUPTION OF SERVICES . . . . . . . . . . . . . . . . . . . 10 (g) ENERGY CURTAILMENT . . . . . . . . . . . . . . . . . . . . . . 10 (h) NORMAL BUSINESS HOURS. . . . . . . . . . . . . . . . . . . . . 10 (I) HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . 10 12. INDEMNIFICATION; WAIVER OF CLAIMS . . . . . . . . . . . . . . . . . . 10 13. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (a) TENANT'S INSURANCE . . . . . . . . . . . . . . . . . . . . . . 11 (b) LANDLORD AS ADDITIONAL INSURED . . . . . . . . . . . . . . . . 12 (c) LANDLORD'S INSURANCE . . . . . . . . . . . . . . . . . . . . . 12 (d) INCREASE IN PREMIUMS . . . . . . . . . . . . . . . . . . . . . 12 14. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . 12 15. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16. ASSIGNMENT AND SUBLEASE . . . . . . . . . . . . . . . . . . . . . . . 13 (a) PROHIBITION. . . . . . . . . . . . . . . . . . . . . . . . . . 13 (b) OPTION TO CANCEL . . . . . . . . . . . . . . . . . . . . . . . 13 (c) RIGHT TO COLLECT RENTS DIRECTLY. . . . . . . . . . . . . . . . 13 (d) EXCESS RENT. . . . . . . . . . . . . . . . . . . . . . . . . . 13 17 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 18. COMPLIANCE WITH LAWS AND WITH RULES AND REGULATIONS . . . . . . . . . 13 (a) LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (b) RULES AND REGULATIONS. . . . . . . . . . . . . . . . . . . . . 14 19. FIRE AND CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . . 14 20. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 21. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 22. WAIVER OF DEFAULT OR REMEDY. . . . . . . . . . . . . . . . . . . . . .17 23. LANDLORD'S LIEN. . . . . . . . . . . . . . . . . . . . . . . . . . . .17 24. UNIFORM COMMERCIAL CODE. . . . . . . . . . . . . . . . . . . . . . . .17 25. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ii 26. SUBORDINATION OF LEASE . . . . . . . . . . . . . . . . . . . . . . . .17 27. NOTICES AND CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . .18 28. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . .18 29. MISCELLANEOUS TAXES. . . . . . . . . . . . . . . . . . . . . . . . . .18 30. SUBSTITUTE PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . .19 31. BROKERAGE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . .20 32. HAZARDOUS DEVICES AND CONTAMINANTS . . . . . . . . . . . . . . . . . .20 (a) PROHIBITION . . . . . . . . . . . . . . . . . . . . . . . . . .20 (b) INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .20 (c) DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .21 33. EXCULPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 34. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 35. LOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 36. EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 37. PLUMBING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 38. CERTAIN RIGHTS RESERVED TO LANDLORD. . . . . . . . . . . . . . . . . .21 39. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 40. RELATIONSHIP OF PARTIES. . . . . . . . . . . . . . . . . . . . . . . .22 41. GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . . .22 42. TOPIC HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 43. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 44. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .23 45. RECORDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 46. GOVERNING LAW; INVALIDITY OF ANY PROVISIONS. . . . . . . . . . . . . .23 iii LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease"), dated APRIL 25, 1995, is between OTR, an Ohio general partnership ("Landlord") acting as the duly authorized nominee of the BOARD OF THE STATE TEACHERS RETIREMENT SYSTEM OF OHIO ("STRBO"), and Novellus Systems, Inc., ("Tenant"). 1. PREMISES. In consideration of the rents, terms, provisions and covenants of this Lease, Landlord hereby leases unto Tenant and Tenant hereby rents and accepts from Landlord those certain premises containing approximately 6,916 net rentable square feet, consisting of 5,861 net usable square feet, located on the NINTH (9TH) FLOOR (the "Premises"). The Premises are outlined on the floor plan attached hereto as Exhibit A and incorporated herein by reference. The Premises are contained in that certain building located at 1701 Directors Boulevard, Austin, Texas 78744 (the "Building"), which Building contains 153,474 net rentable square feet of space. The land on which the Building is situated, together with all improvements located thereon (collectively, the "Property"), is more particularly described on Exhibit B, attached hereto and incorporated herein by reference. 2. TERM. (a) 54 Months as listed below. Subject to Paragraph 3 of Exhibit G. (b) For purposes of this Lease, the following terms shall have the following meanings: (i) "Commencement Date" shall mean the date upon which the Premises are substantially completed (as hereinafter defined). Promptly upon determination of the Commencement Date, Landlord and Tenant shall execute a memorandum, setting forth the Commencement Date and the expiration date of this Lease, in form and substance substantially similar to that attached hereto as Exhibit C and incorporated by reference. (ii) "Lease Year" shall mean each twelve (12) month period commencing on the first day of the first full month after the Commencement Date and each anniversary thereafter during the Term (as hereinafter defined) of this Lease; provided, however, that if the Commencement Date is the first day of the month, the first Lease Year shall commence on the Commencement Date. The first Lease Year shall commence on the Commencement Date and end on the last day of the last month of the first Lease Year regardless of whether the first Lease Year is longer than twelve (12) months. (iii) "Term" shall mean the initial term of this Lease and any renewals or extensions thereof. 3. RENTAL. (a) BASE RENTAL. Tenant shall pay to Landlord, as base rental (the "Base Rental") during the Term of this Lease the following amounts:
Cost Per Square Foot, Net Rentable Monthly Annual Dates NRA Per Annum Area Base Rental Base Rental ----- --------------------- ------------ ----------- ----------- 06/01/95-11/30/95 $13.25 Per Sq. Ft. 6,916 $7,636.42 $91,637.00 12/01/95-03/31/96 $14.25 Per Sq. Ft. 6,916 $8,212.75 $98,553.00 04/01/96-11/30/96 $14.25 Per Sq. Ft. 7,978 $9,473.88 $113,686.50* 12/01/96-11/30/97 $14.85 Per Sq. Ft. 7,978 $9,872.78 $118,473.30 12/01/97-11/30/98 $15.20 Per Sq. Ft. 7,978 $10,105.47 $121,265.60 12/01/98-11/30/99 $15.55 Per Sq. Ft. 7,978 $10,338.16 $124,057.90
*On 04/01/96 Tenant shall begin paying on the 1,062 net rentable square feet, 900 net usable square feet Expansion Space as indicated on Exhibit A. Each such monthly installments shall be due and payable in advance, on or before the first day of each and every month during the Term, without notice, demand or set-off; provided, however, that the first month's rent shall be due and payable upon execution of this Lease. (b) ADDITIONAL RENTAL. If Operating Expenses in any calendar year exceed the sum of SIX DOLLARS & 25/100 ($6.25) per square foot NRA ("Base Operating Expense Amount") (such excess amount being hereinafter referred to as the "Operating Expense Pass-through Amount"), Tenant shall pay to Landlord, as Additional Rental (hereinafter defined), Tenant's Proportionate Share (as hereinafter defined) of the Operating Expense Pass-through Amount as set forth below. If this Lease commences or terminates on a date other than January 1, the annual Operating Expenses and the Base Operating Expense Amount shall be prorated by multiplying one-twelfth (1/12) of the annual Operating Expenses and one-twelfth (1/12) of the Base Operating Expense Amount each by the number of full or partial months between the Commencement Date and December 31 of the year of commencement or between January 1 of the year of termination and the termination date, as the case may be. As used in this Lease, "Proportionate Share" shall mean a percentage factor, determined by dividing the net rentable square footage contained in the Premises by the net rentable square footage contained in the Building, or (5.2%) percent; provided, however, that if THE BUILDING IS NOT FULLY OCCUPIED, TENANT'S PROPORTIONATE SHARE OF THE OPERATING EXPENSE PASS-THROUGH AMOUNT FOR ANY OPERATING EXPENSES THAT VARY WITH THE OCCUPANCY OF THE BUILDING which for purposes of this paragraph shall be cleaning expenses, management fees, maintenance costs and utilities, shall mean a percentage factor determined by dividing the net rentable square footage contained in the Premises by the average net rentable square footage occupied by tenants in the Building during a calendar year. (i) OPERATING EXPENSES. "Operating Expenses" shall include those expenses paid by or on behalf of Landlord in respect of the management, operation, service and maintenance of the Property, including the Premises in accordance with generally accepted principles of office building management as applied to the operation and maintenance of office buildings similar to the type and nature of the Property and in the general market area as the Property. Operating Expenses shall include, but not be limited to, (A) Real Estate Taxes (as hereinafter defined); (B) premium costs for liability, boiler, extended coverage, casualty and other insurance covering the Property to be maintained by Landlord and required by the terms of this Lease; (C) electricity, gas, water and other utility charges for the Property; (D) repair and maintenance of HVAC systems, elevators, irrigation systems and other mechanical systems; (E) repair and maintenance of the Common Areas (as hereinafter defined) and the Building structure and roof; (F) trash removal and snow removal; (G) janitorial service; (H) wages, salaries and fees of operating, auditing, accounting, maintenance and management personnel in connection with the Property; (I) all payroll charges for such personnel, such as unemployment and social security taxes, workers' compensation, health, accident and group insurance, and other so- called fringe benefits; (J) rental charges for office space chargeable to the operation and management of the Property; (K) license permits and inspection fees; (L) supplies and materials used in the operation and management of the Property; (M) furnishings and equipment not treated by Landlord as capital expenditures of the Property; (N) depreciation and the cost of any labor saving devices that may, from time to time, be placed in operation as a part of Landlord's maintenance program; (O) personal property taxes on property used in the operation, maintenance, service and management of the Property; (P) the cost, as reasonably amortized by Landlord, with interest at the rate of ten percent (10%) per annum of the unamortized amount, of any capital improvement made after completion of initial construction of the Building which reduces Operating Expenses, but in an amount not to exceed such reduction for the relevant year; (Q) management fees relating to the Property; (R) the cost of any installation or improvement required by reason of any law, ordinance or regulation, which requirement did not exist on the date of the Lease and is generally applicable to similar office buildings; and (S) all other expenses necessary for the operation and management of the Property, but excluding capital improvements except to the extent specifically described in this paragraph. (ii) REAL ESTATE TAXES. "Real Estate Taxes" shall include all taxes, including state equalization factor, if any, and assessments, special or otherwise, exclusive of penalties or discounts levied upon or with respect to the Property, including the Premises, imposed by any federal, state or local governmental agency, and including any use, occupancy, excise, sales or other like taxes (other than general income taxes 2 on rent or other income from the Building computed in the case of a graduated tax, as if Landlord's rent and other income from the Building was Landlord's sole taxable income). Real Estate Taxes also shall include the expense of contesting the amount or validity of any such taxes, charges or assessments, such expense to be applicable to the period of the item contested. Real Estate Taxes shall not, however, include income, franchise, capital stock, estate or inheritance taxes unless Landlord reasonably determines that such taxes are in lieu of real estate taxes, assessments, rental, occupancy and other like excise taxes. For purposes of this Lease, Real Estate Taxes for any calendar year shall be those taxes the last timely payment date for which occurs within such calendar year. In case of special taxes or assessments payable in installments, only the amount of the installment(s) the last timely payment date for which occurs on or after the first day and on or before the last day of such year shall be included in Real Estate Taxes for that year. Landlord shall retain the sole right to participate in any proceedings to establish or contest the amount of Real Estate Taxes. If a complaint against valuation, protest of tax rates or other action increases or decreases the Real Estate Taxes for any calendar year, resulting in an increase or decrease in rent hereunder, the Real Estate Taxes for the affected calendar year shall be recalculated accordingly and the resulting increased rent plus the expenses incurred in connection with such contest, or decreased rent, less the expenses incurred in connection with such contest, shall be paid simultaneously with or applied as a credit against, as the case may be, the rent next becoming due. (c) PAYMENT OF PROPORTIONATE SHARE. To provide for current payments of Operating Expenses, Tenant shall pay Tenant's Proportionate Share of the Operating Expense Pass-through Amount, as estimated by Landlord from time to time, in twelve (12) monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount of its estimated Proportionate Share. Landlord and Tenant intend to estimate the amount of Operating Expenses for each year and then to reconcile such estimated expenses in the following year based on actual Operating Expenses for such year paid by Landlord. If Tenant's Proportionate Share of the actual Operating Expense Pass-through Amount shall be greater than or less than the aggregate of all installments so paid on account to Landlord for such twelve (12) month period, then within thirty (30) days of Tenant's receipt of Landlord's statement of reconciled Operating Expenses, Tenant shall pay to Landlord the amount of such underpayment, or Landlord shall credit Tenant for the amount of such overpayment against the next maturing installment(s) of rent, as the case may be. The obligation of Tenant with respect to the payment of Tenant's Proportionate Share of the Operating Expense Pass-through Amount shall survive the termination of this Lease. Any payment, refund, or credit made pursuant to this subparagraph 3(c) shall be made without prejudice to any right of Tenant to dispute the statement as hereinafter provided, or of Landlord to correct any item(s) as billed pursuant to the provisions hereof. Landlord's failure to give such statement shall not constitute a waiver by Landlord of its right to recover rent that is due and payable pursuant to this subparagraph 3(c). (d) DISPUTE OF OPERATING EXPENSES. If Tenant questions in writing any such notice of reconciled Operating Expenses (or revised notice thereof), and if the question is not amicably settled between Landlord and Tenant within thirty (30) days after said notice of reconciled Operating Expenses (or revised adjusted) has been given, Landlord shall, during the sixty (60) days next following the expiration of such thirty (30) day period, employ an independent certified public accountant to audit Operating Expenses. The determination of such account shall be final, conclusive and binding upon Landlord and Tenant. Tenant understands that the actual itemization of, and the amount of individual items constituting, Operating Expenses is confidential; and while Landlord shall keep and make available to such accountant all records in reasonable detail, and shall permit such accountant to examine and audit such of Landlord's records as may reasonably be required to verify such reconciled Operating Expenses, at reasonable times during business hours, Landlord shall not be required to (and the accountant shall not be permitted to) disclose to any person, firm or corporation, including to Tenant, any such details (it being the intent of the parties that such accountant shall merely certify to Landlord and to Tenant the correct amount of adjusted additional Operating Expenses for the calendar year). Any change in the reconciled Operating Expenses required by such accountant's determination shall be made within thirty (30) days after such determination has been rendered. The expenses involved in such determination shall be borne by Tenant and deemed to be Additional Rental under this 3 Lease, unless the results of such audit determine that the difference between the Operating Expenses as determined by the audit and the Operating Expenses as determined by Landlord is greater than five percent (5%) of the Operating Expenses as determined by Landlord, in which case such expenses shall be borne by the Landlord. If Tenant does not, in writing, question the reconciled Operating Expenses within thirty (30) days after such notice has been given, Tenant shall be deemed to have approved and accepted such reconciled Operating Expenses. (e) ADJUSTMENTS TO OPERATING EXPENSES. If a clerical error occurs or Landlord or Landlord's accountants discover new facts, which error or discovery causes Operating Expenses for any period to increase or decrease, upon notice by Landlord to Tenant of the adjusted additional Operating Expenses for such calendar year, the adjusted additional Operating Expenses shall apply and any deficiency or overpayment of Tenant's Proportionate Share of the Operating Expense Pass-through Amount, as the case may be, shall be paid by Tenant or taken as a credit by Tenant according to the provisions set forth above. This provision shall survive the termination of the Lease. (f) NO DECREASE IN BASE RENTAL. If the actual Operating Expenses is less than the Base Operating Expense Amount, the annual Base Rental as set forth in subparagraph 3(a) hereof shall not be reduced. (g) OTHER CHARGES. All costs, expenses and other sums that Tenant assumes or agrees to pay to Landlord pursuant to this Lease ("Other Charges") shall be deemed rental and, in the event of nonpayment thereof, Landlord shall have all the rights and remedies herein provided for in case of nonpayment of Base Rental. If a monthly installment of rent is not received on or before the fifth (5th) day of the month in which it is due, other remedies for nonpayment of rent notwithstanding, Tenant shall pay to Landlord, a late charge of five percent (5%) of such installment as rent for the purpose of defraying Landlord's administration expenses incident to the handling of such overdue payment, and such past due rent shall bear interest at a rate of interest equal to the prime rate as announced from time to time by Bank One, Columbus, N.A., plus three percent (3%) per annum (the "Default Rate"), for each day from the first day of the month through the date such monthly installment of rent is received by Landlord. For purposes of this Lease, "rent" shall mean Base Rental, Additional Rental, and Other Charges. (h) PLACE OF PAYMENT. Tenant shall pay all rent and other charges due under this Lease without demand, deduction or set off to Landlord at C/O TRAMMELL CROW COMPANY, 1701 DIRECTORS BOULEVARD, SUITE 350, AUSTIN, TEXAS 78744 or at such other place as Landlord may designate from time to time hereafter by written notice to Tenant. 4. CONSTRUCTION. (a) IMPROVEMENTS TO BE CONSTRUCTED. Landlord, at its own cost and expense, shall perform the work and make the installations in the Premises that are designated as Landlord's Work in Exhibit D, attached hereto and incorporated herein by reference. Landlord, at Tenant's cost and expense, shall perform the work and make the installations in the Premises that are designated as Tenant's Work in Exhibit D. Except as expressly set forth in Exhibit D, Landlord has made no promise to alter, remodel or improve the Premises, the Building or the Property. (b) WORK PRIOR TO COMMENCEMENT DATE. All work, including Tenant's Work, in the Premises shall be substantially completed prior to June 1, 1995 (the "Estimated Completion Date") and the Premises shall be in good and tenantable condition in all respects for occupancy by Tenant for its purposes and uses so long as Tenant shall have approved the plans and specifications for construction and remodeling of the Premises on or before April 15, 1995. Tenant may make changes in said plans and specifications on or before April 15, 1995; provided, however, that in such event Landlord shall be given a reasonable extension of time to complete Landlord's Work after the Estimated Completion Date. Any extension of time and modifications to plans and specifications shall be in writing, dated and signed by both parties. (If Tenant does not timely submit to Landlord approved plans and specifications, the Commencement Date shall be the Estimated Completion Date and the rental shall commence from that date notwithstanding the fact that the Premises are not substantially completed.) The Estimated Completion Date 4 shall be postponed in the event of (I) the unavailability of materials and equipment that have been specified and requested by Tenant or (ii) delays caused by acts of God, strikes and other events beyond the reasonable control of Landlord, and neither circumstance shall give rise to liability of Landlord. (c) AVAILABILITY OF PREMISES PRIOR TO COMMENCEMENT DATE. If Landlord, at Tenant's request, makes the Premises available to Tenant before the Commencement Date to decorate, furnish, and equip the Premises, Tenant shall not interfere with the completion of Landlord's Work. Tenant's use of the Premises for such work shall not create a landlord-tenant relationship between the parties, or constitute occupancy of the Premises within the meaning of the next sentence, but the provisions of Paragraphs 12 and 13 of this Lease shall apply. (d) SUBSTANTIAL COMPLETION. As used herein, the work in the Premises shall be "substantially completed" when the work has been completed in accordance with the plans and specifications subject to the completion of punch list items and a certificate of occupancy has been issued. (e) CONDITION OF PREMISES. Except as otherwise agreed to in writing, Tenant's taking possession of the Premises shall be conclusive evidence against Tenant that the Premises were in good order and satisfactory condition when Tenant took possession. Landlord has made no representation respecting the condition of the Premises, the Building or the Property, except for latent defects except as is expressly set forth in Exhibit D. At the termination of this Lease, by lapse of time or otherwise, Tenant shall remove all Tenant's property, including but not limited to, trade fixtures, from the Premises, and shall return the Premises broom-clean and in as good a condition as when the Tenant took possession or as same may thereafter have been put by Landlord, except for ordinary wear, loss by fire or other casualty, and repairs that Landlord is required to make under this Lease. If Tenant fails to remove any or all of its property upon termination of this Lease, such property shall be deemed to be abandoned and shall become the property of Landlord. (f) OVERLOAD. To coordinate orderly move-ins and move-outs, no furniture, freight or equipment of any kind exceeding three hundred (300) pounds shall be brought into the Building without prior notice to Landlord and Landlord shall designate the time and manner of moving of the same. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause, and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at Tenant's expense. 5. USE OF THE PREMISES. (a) USE. Tenant shall use the Premises for the conduct of GENERAL OFFICE USE and for no other purpose whatsoever. Tenant shall not, without the prior written consent of Landlord, exhibit, sell or offer for sale on the Premises or in the Building any article or thing, except those articles and things essentially connected with Tenant's stated use of the Premises. (b) ADVERTISEMENT. Tenant shall not advertise the business, profession or activities of Tenant conducted in the Building in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining to such business of Tenant, and shall never use any picture or likeness of the Building in any circulars, notices, advertisements or correspondence without Landlord's prior written consent. (c) SOLICITATION. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate with Landlord to prevent same. (d) CARE. Tenant shall use and occupy the Premises so that no other occupant of any adjoining premises will be unreasonably disturbed and shall create no nuisance in, upon or about the Premises. Subject to 5 the provisions of Paragraph 8(b), Tenant shall take good care of the Premises, the fixtures and appurtenances thereto, and all alterations, additions and improvements thereto. Tenant will not make or permit to be made any use of the Premises or any part thereof, and will not bring into or keep anything in the Premises or any part thereof that (i) violates any of the covenants, agreements, terms, provisions and conditions of this Lease; (ii) directly or indirectly is forbidden by public law, ordinance or regulation of any government or public authority (including zoning ordinances); (iii) is dangerous to life, limb or property; (iv) increases the risk to Landlord or any other tenant or invalidate or increase the premium cost of any policy of insurance carried on the Building or covering its operation; or (v) in the reasonable judgment of Landlord, in any way impairs or tends to impair the character, reputation or appearance of the Property as a first-class office building, or impairs or interferes with any of the services performed by Landlord for the Property. (e) NOISE; ODORS. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises; permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors and/or vibrations; interfere in any way with other tenants or those having business therein; or bring in or keep any animals or birds in the Premises. Tenant shall not use the Premises for housing accommodations or lodging or sleeping purposes, or do any cooking therein, or use any illumination other than electric light. 6. ALTERATIONS. (a) PROHIBITION. Tenant shall not make any alterations, additions or improvements (collectively, the "Alterations") in or to the Premises, or in or to the Building without the express prior written consent of Landlord; provided, however, that Landlord shall not be unreasonable in withholding consent to nonstructural Alterations. Before commencing any work in connection with the Alterations, Tenant shall furnish to Landlord for its approval the following: (i) detailed plans and specifications therefor, (ii) names and addresses of each of the contractors and subcontractors, (iii) copies of all contracts, subcontracts and necessary permits, (iv) a payment and performance bond, or other indemnification, in form and amount satisfactory to Landlord, protecting Landlord against any and all claims, costs, damages, liabilities and expenses that may arise in connection with the Alterations, (v) such documentation as is necessary to comply fully with the mechanics' lien law of the state in which the Premises is located, and (vi) certificates of insurance, in form and amount satisfactory to Landlord, from all contractors and subcontractors who will perform labor or furnish materials, insuring Landlord against any and all liability for personal injury, including workers' compensation claims and for property damage that may arise out of or be in any manner connected with the Alterations. (b) INDEMNIFICATION. In addition to the indemnity set forth in Paragraph 12 of this Lease, Tenant hereby specifically agrees to indemnify and hold harmless Landlord from and against any and all liabilities, costs and expenses of every kind and description, including attorneys' fees, that may arise out of or in any manner be connected with any Alterations made by Tenant. Tenant shall pay the cost of all such Alterations and all costs associated with decorating the Premises that may be occasioned thereby. Upon completion of any such Alterations, Tenant shall furnish Landlord with (i) receipted bills covering all labor and materials used, together with such documentation as is necessary to comply fully with the mechanics' lien law of the state in which the Premises are located; (ii) a true and correct copy of the certificate of occupancy, if one is issued; and (iii) a certificate of Tenant's architect or engineer stating that such Alterations were made in substantial accordance with the plans and specifications. Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises. (c) COMPLIANCE AND SUPERVISION OF ALTERATIONS. All Alterations made by Tenant hereunder shall be installed in a good and workmanlike manner, using only materials of the same or higher quality as those installed in the Building. All Alterations shall comply with all requirements of Landlord's insurance carriers and with all laws, rules, ordinances and regulations of any lawful authority. Tenant shall permit Landlord to supervise construction operations in connection with any such Alterations, if Landlord requests the right to do so (but Landlord shall have no obligation to make such requests, or having done so, to supervise construction). Landlord's 6 supervision of construction shall be done solely for the benefit of Landlord and shall not alter Tenant's liability and responsibility under this Paragraph 6. (d) LANDLORD'S PROPERTY. All Alterations, whether temporary or permanent, including hardware, non-trade fixtures and wall and floor coverings, whether placed in or upon the Premises by Landlord or Tenant, shall become Landlord's property and shall remain with the Premises at the termination of this Lease, whether by lapse of time or otherwise, without compensation, allowance or credit to Tenant; provided, however, that notwithstanding the foregoing, Landlord may request that any or all of said Alterations in or upon the Premises made by Tenant be removed by Tenant at the termination of this Lease. If Landlord requests such removal or if Tenant removes its trade fixtures, Tenant shall remove the same prior to the end of the Term and shall repair all damage to the Premises, the Building or the Property caused by such removal. Tenant shall not, however, be required to remove pipes and wires concealed in floors, walls or ceilings, provided that Tenant properly cuts and caps the same, and seals them off in a safe, lawful and workmanlike manner, in accordance with Landlord's reasonable requirements and all applicable building codes. If Tenant does not remove any Alterations when requested by Landlord to do so, Landlord may remove the same and repair all damage caused thereby, and Tenant shall pay to Landlord the cost of such removal and repair immediately upon demand therefor by Landlord, plus fifteen percent (15%) of the cost of such removal to reimburse Landlord for its administrative expense. Tenant's obligation to observe or perform this covenant shall survive the expiration or termination of this Lease. (e) WIRING. Landlord will direct electricians as to where and how telephone and computer wires are to be introduced. No boring or cutting for wires shall be allowed without Landlord's consent. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to Landlord's approval. 7. MECHANICS' LIENS. (a) If, because of any act or omission of Tenant, any mechanic's lien or other lien, charge or order for the payment of money shall be filed against any portion of the Premises, Tenant, at its own cost and expense, shall cause the same to be discharged of record or bonded against within ten (10) days of the filing thereof unless Tenant shall contest the validity of such lien by appropriate legal proceedings diligently conducted in good faith and without expense to Landlord; and Tenant shall indemnify and save harmless Landlord against and from all costs, liabilities, suits, penalties, claims and demands, including attorneys' fees, on account thereof. (b) If Tenant shall fail to cause such liens to be discharged of record or bonded against within the aforesaid ten (10) day period or shall fail to satisfy such liens within ten (10) days after any judgment in favor of such lien-holders from which no further appeal might be taken, then Landlord shall have the right to cause the same to be discharged. All amounts paid by Landlord to cause such liens to be discharged, plus interest on such amounts at the Default Rate shall constitute Other Charges payable by Tenant to Landlord. 8. MAINTENANCE AND REPAIR. (a) TENANT'S MAINTENANCE. Tenant, at its sole cost and expense, shall maintain and repair during the Term of this Lease the Premises and every part thereof and any and all appurtenances thereto, including but not limited to, the doors and interior walls of the Premises; special light fixtures; kitchen fixtures; auxiliary heating, ventilation, or air-conditioning equipment; private bathroom fixtures and any other type of special equipment, together with related plumbing or electrical services; and rugs, carpeting, wall coverings, and drapes within the Premises, whether installed by Tenant or by Landlord on behalf of Tenant, and whether or not such items will become Landlord's property upon expiration or termination of this Lease. Notwithstanding the provisions hereof, in the event that repairs required to be made by Tenant become immediately necessary to avoid possible injury or damage to persons or property, Landlord may, but shall not be obligated to, make repairs to such items at Tenant's expense, which shall constitute Other Charges payable by Tenant to Landlord. Within ten (10) days after Landlord renders a bill for the cost of said repairs, Tenant shall reimburse Landlord. 7 (b) LANDLORD'S MAINTENANCE. Subject to Paragraph 8(a) above, Landlord shall keep repair and maintain the Building (including the roof and structural members, the Common Areas, mechanical and electrical equipment, the exterior and architectural finish, and all items except those excepted elsewhere in this Lease) of which the Premises are a part, and the lawn, shrubs and other landscaping on the Property, all in good and tenantable condition during the Term of this Lease. Landlord shall, in addition, supply reasonable snow removal for the walkways and parking areas of the Property during Normal Business Hours (as hereinafter defined). Tenant shall notify Landlord immediately when any repair to be made by Landlord is necessary. If any portion of the Building or the Premises is damaged through the fault or negligence of Tenant, its agents, employees, invitees or customers, then Tenant shall promptly and properly repair the same at no cost to Landlord; provided, however, that Landlord may, at its option, make such repairs and Tenant shall, on demand, pay the cost thereof, together with interest at the Default Rate to Landlord as Other Charges. Tenant shall immediately give Landlord written notice of any defect or need for repairs, after which notice Landlord shall have reasonable opportunity to repair same or cure such defect. For the purposes of making any repairs or performing any maintenance, Landlord may block, close or change any entrances, doors, corridors, elevators, or other facilities in the Building or in the Premises, and may close, block or change sidewalks, driveways or parking areas of the Property, so long as Tenant at all times has reasonable access to the Premises for Tenant intended use. Landlord shall not be liable to Tenant, except as expressly provided in this Lease, for any damage or inconvenience and Tenant shall not be entitled to any abatement of rent by reason of any repairs, alterations or additions made by Landlord under this Lease. (c) INSPECTION. Tenant shall permit Landlord, its agents, employees and contractors, at any time in the event of an emergency, and otherwise at reasonable times, to take any and all measures, including inspections, repairs, alterations, additions and improvements to the Premises or to the Building, as may be necessary or desirable to safeguard, protect or preserve the Premises, the Building or Landlord's interests; to operate or improve the Building; to comply on behalf of Tenant with all laws, orders and requirements of government or other authority (if Tenant fails to do so); to examine the Premises to verify Tenant's compliance with all of the terms, covenants, obligations and conditions of this Lease; or to exercise any rights with respect to the Premises that Landlord may exercise in the event of default by Tenant. 9. COMMON AREAS. (a) GRANT. During the Term of this Lease, Landlord grants to Tenant, its employees, customers and invitees, a nonexclusive license to use, in common with all others to whom Landlord has granted or may hereafter grant a license to use, the common areas of the Property, including but not limited to, the sidewalks, lobbies, halls, passages, exits, entrances, elevators, stairways, restrooms, parking areas (except as provided for in subparagraph (b) below), driveways and landscaped areas (collectively, the "Common Areas") subject to reasonable rules and regulations respecting the Common Areas as Landlord may from time to time promulgate. The Common Areas shall not be obstructed by Tenant or used for any purpose other than for ingress to and egress from the Premises. The Common Areas are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. Neither Tenant nor its employees, customers or invitees shall go upon the roof or mechanical floors or into mechanical areas of the Building. (b) PARKING. Parking will be provided in the surface parking area of the Property, and subject to the limitations below, in the underground parking area of the Building, if any. Landlord shall have the right to designate aboveground parking areas for the use of the Building, and Tenant and its employees shall not park in parking areas not so designated, specifically including entrances. Upon written notice from Landlord, Tenant shall furnish to Landlord, within five (5) days after receipt of such notice, the state automobile license numbers assigned to the automobiles of Tenant and its employees. Landlord shall not be liable for any vehicle of Tenant or its employees that the Landlord shall have towed from the Premises when illegally parked. Landlord shall have no liability to Tenant for any damages or claims arising from the use of the parking area or roadways by Tenant, other tenants, or their customers invitees or employees. Tenant shall be allotted TWENTY (20) covered spaces within the 8 garage, beginning October 1, 1995, but prior to this date only eight (8) covered spaces within the garage shall be available, which at Landlords discretion shall be either on the first level of the garage or reserved on the second level. Tenant shall be allowed fan additional TWELVE (12) spaces in the surface lots associated with the building. Landlord is not responsible for the policing or enforcement of the exclusivity of these underground spaces. Tenant, its sole cost and expense, shall be issued key cards, not in excess of the number of spaces allotted to Tenant, which cards will allow Tenant entry into the underground parking area. If any of the key cards issued to Tenant are lost, Landlord shall charge Tenant the sum of Fifty Dollars ($50.00) for each replacement card issued. (c) RIGHT TO CHANGE COMMON AREAS. Landlord may do and perform such acts in and to the Common Areas as, Landlord, in its good business judgment, shall determine to be advisable. Landlord hereby reserves the right to make alterations, additions, deletions or changes in the Common Area, including, but not limited to, changes in its size and configuration. 10. BUILDING SERVICES. (a) ELECTRIC. Landlord shall provide electric power to the Premises. Electric power furnished by Landlord is intended to be that consumed in normal office use during Normal Business Hours for lighting, heating, ventilating, air conditioning and operating all office equipment. Landlord reserves the right, if Tenant's consumption of electricity exceeds that required for normal office use during Normal Business Hours, to include a charge for such electricity as rent. Such charge shall be based upon the average cost per unit of electricity for the Building applied to the excess use as determined by an independent engineer selected by Landlord, or at Landlord's option, to be determined by a submeter to be furnished and installed at Tenant's expense. If Tenant refuses to pay upon demand of Landlord such excess charges, such refusal shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights granted in this Lease for such breach. Tenant shall use strict care and caution to ensure that all electricity is carefully shut off to prevent waste or damage. (b) WATER. Landlord shall provide water for drinking, lavatory and toilet purposes from the regular Building supply (at the prevailing temperature) through fixtures installed by Landlord (or by Tenant with Landlord's prior written consent); provided that Tenant shall reimburse Landlord, at rates fixed by Landlord, for water used by Tenant for supplementary air-conditioning or refrigerating installed by or for Tenant and for any other water used by Tenant (except for public drinking water and public lavatory use). (c) AIR-CONDITIONING AND HEAT. Landlord shall provide air conditioning and heat to the Premises for comfortable occupancy during Normal Business Hours, subject at all times, however, to restrictions placed upon Landlord by any duly constituted governmental agency and/or by any utility supplier. Tenant shall cooperate fully with Landlord to assure the effective operation of the Building's air-conditioning and heating systems, including the closing of venetian blinds and drapes, and if windows are operable, to keep them closed when the air-conditioning or heating system is in use. Tenant shall not use any apparatus or device in, upon or about the Premises that in any way may increase the amount of such services usually furnished or supplied to tenants in the Building, and Tenant shall not connect any apparatus or device with the conduits or pipes, or other means by which such services are supplied for the purpose of using additional or unusual amounts of such services, without the prior written consent of Landlord. If Tenant uses such services under this provision to excess, Landlord reserves the right to charge Tenant for such services, as rent. If Tenant refuses to make payment upon demand of Landlord, such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights granted in this Lease for such breach. (d) JANITOR SERVICE. Landlord shall provide janitor service in and about the Premises and the Building at the end of each Monday, Tuesday, Wednesday and Thursday, and at Landlord's option, at the end of either Sunday or Friday, except for Holidays (as hereinafter defined). Tenant shall not provide any janitor service without Landlord's prior written consent. If Landlord consents to janitor service provided by Tenant, the same shall be subject to Landlord's rules and regulations and to Landlord's supervision, but at Tenant's sole cost and expense (without reduction in Base Rent or Additional Rental). Landlord shall further provide carpet cleaning in the Common Areas and window cleaning at such times as Landlord, in its sole opinion, considers that such cleaning 9 is necessary. Each Tenant shall cooperate with any janitor service in keeping the Premises neat and clean. Landlord shall be in no way responsible to Tenant, its agents, employees or invitees, for any loss of property within the Premises or for any damage to property thereon, from any cause. (e) ELEVATOR SERVICE. If the Building contains elevators, Landlord shall provide passenger elevator during Normal Business Hours. (f) INTERRUPTION OF SERVICES. Tenant hereby acknowledges that any one or more of the utilities or building services specified in this Paragraph 10 may be interrupted or diminished temporarily by Landlord or other persons until certain repairs, alterations or other improvements to the Premises or other parts of the Property can be made or by any event or cause which is beyond Landlord's reasonable control, including, without limitation, any ration or curtailment of utility services; that Landlord does not represent, warrant or guarantee to Tenant the continuous availability of such utilities or building services; and that any such interruption shall not be deemed or construed to be an interference with Tenant's right of possession, occupancy or use of the Premises, shall not render Landlord liable to Tenant for damages or entitle Tenant to any reduction of Base Rental, and shall not relieve Tenant from its obligation to pay Base Rental and to perform its other obligations under this Lease. (g) ENERGY CURTAILMENT. Landlord and Tenant specifically acknowledge that energy shortages in the region in which the Property is located may from time to time necessitate reduced or curtailed energy consumption on the Property. Tenant shall comply with all such rules and regulations as may be promulgated from time to time by any governmental authority with respect to energy consumption, and during such period of time as such governmental authority may so require, Tenant shall reduce or curtail operations in the Premises as shall be directed by Landlord or such governmental authority. Compliance with such rules and regulations and/or such reduction or curtailment of operation shall not constitute a breach of Landlord's covenant of quiet enjoyment or otherwise invalidate or affect this Lease, and Tenant shall not be entitled to any diminution or abatement in Base Rental during the periods of reduction or curtailment of operations. (h) NORMAL BUSINESS HOURS. For purposes of this Lease, "Normal Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturday and not including Sundays and Holidays. (i) HOLIDAYS. For purposes of this Lease, Holidays shall mean New Year's Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas. 11. ESTOPPEL CERTIFICATES. Within ten (10) days after written request by Landlord, Tenant shall execute, acknowledge and deliver to Landlord or to Landlord's mortgagee, a prospective purchase of the Property or any part thereof, an estoppel certificate, in form and substance substantially similar to that attached as Exhibit E and incorporated herein by reference. Tenant shall make such modifications to such estoppel certificate as may be necessary to make such certificate true and accurate, it being intended that any such statement delivered pursuant to this Paragraph 11 may be relied upon by any such mortgagee, prospective mortgagee, prospective purchaser, or land lessor of the Property. If Tenant fails to provide such estoppel certificate with ten (10) days after Landlord's request, Tenant shall be deemed to have approved the contents of any such certificate submitted to Tenant by Landlord and by Landlord is hereby authorized to so certify. 12. INDEMNIFICATION; WAIVER OF CLAIMS. (a) Tenants shall protect, indemnify and hold harmless Landlord, its agents, servants, employees, officers, directors and partners forever against and from (i) any penalty, damages, charges or costs imposed or resulting from any violation of any law, order or ordinance of any governmental agency, or by the use and occupancy of the Premises by Tenant, whether occasioned by the neglect of Tenant or those holding under Tenant; (ii) all claims, losses, costs, damages and expenses, including attorneys' fees, arising out of or from any accident or other occurrence on or about the Premises or the Property causing injury to any person or property, except caused by the negligent or intentional act or omission of Landlord or its servants, agents or employees; (iii) all 10 claims, losses, costs, damages and expenses, including attorneys' fees, arising out of any failure of Tenant in any respect to comply with or perform all the requirements and provisions of this Lease or arising out of any use of the Premises or the Property by Tenant or any one claiming by, through or under Tenant. (b) Landlord shall not be liable for, and Tenant hereby waives all claims against Landlord, (i) for any and all damages or loss to fixtures, equipment or other property of Tenant and its servants, agents, employees, contractors, suppliers, invitees, patrons and guests, in, upon or about the Premises or the Property, or (ii) for injury or death to any person, occurring in, upon or about the Premises or the Property, resulting from any cause whatever (except caused by the negligent or intentional act or omission of Landlord or its servants, agents or employees), including, but not limited to, water, snow, frost, ice, explosion, failing plaster, fire or gas, smoke or other fumes, nor by reason of the leaking, breaking, backing up or other malfunction of any lines, wires, pipes, tanks, boilers, lifts or any other appurtenances, regardless by whom installed or maintained (Tenant hereby expressly assuming all responsibility for the safety and security of the person and property of Tenant, and its servants, agents, employees, contractors, suppliers, invitees, patrons and guests, while in, upon or about the Premises). The occurrence of any event described in this Paragraph 12 shall not constitute a breach of Landlord's covenant of quiet enjoyment set forth in Paragraph 17. (c) Landlord shall protect, indemnify, and hold harmless Tenant, its agents, servants, employees, officers, directors and partners forever against and from (i) any penalty, damages, charges or costs imposed or resulting from any violation of any law, order or ordinance of any governmental agency, or by the use and occupancy of the Property by Landlord, whether occasioned by the neglect of Landlord or those holding under Landlord; (ii) all claims, losses, costs, damages and expenses, including attorney's fees, arising out of or from any accident or other occurrence on or about the Property causing injury to any person or property, except caused by the negligent or intentional act or omission of Tenant or its servants, agents or employees; (iii) all claims, losses, costs, damages and expenses, including attorneys' fees, arising out of any failure of Landlord in any respect to comply with or perform all the requirements ad provisions of this lease or arising out of any use of the Property by Landlord or any one claiming by, through or under Landlord. (d) Tenant shall not be liable for, and Landlord hereby waives all claims against Tenant, (i) for any and all damages or loss to fixtures, equipment or other property of Landlord and its servants, agents, employees, contractors, suppliers, invitees, patrons and guests, in, upon or about the Property, or (ii) for injury or death to any person, occurring in, upon or about the Property, resulting from any cause whatever (except caused by the negligent or intentional act or omission of Tenant or its servants, agents or employees), including, but not limited to, water, snow, frost, ice, explosion, falling plaster, fire or gas, smoke or other fumes, nor by reason of the leaking, breaking, backing up or other malfunction of any lines, wires, pipes, tanks, boilers, lifts or any other appurtenances, regardless of whom installed or maintained (Landlord hereby expressly assuming all responsibility for the safety and security of the persons and property of Landlord, and its servants, agents, employees, contractors, suppliers, invitees, patrons and guests, while in, upon or about the Property). 13. INSURANCE. (a) TENANT'S INSURANCE. Tenant, at its sole cost and expense, shall carry during the entire Term of this lease, the following types of insurance: (i) Commercial general liability insurance against injuries to persons occurring in, upon or about the Premises, with minimum coverage of Five Million Dollars ($5,000,000.00) per occurrence and Five Million Dollars ($5,000,000.00) aggregate coverage per one (1) accident or disaster, and One Million Dollars ($1,000,000.00) for property damage; (ii) Fire, extended coverage, vandalism and malicious mischief, and sprinkler damage and all-risk insurance coverage on all personal property, trade fixtures, floor coverings, wall coverings, furnishings, furniture, and contents for their full insurable value on a replacement cost basis; 11 (iii) Business interruption insurance, against loss or damage resulting from the same risks as are covered by the insurance mentioned in subparagraph (i) above in an amount equal to the aggregate of one (1) year's requirement of (A) Base Rental, (B) the amount payable by Tenant for Additional Rental as provided in subparagraph 3(b), and (C) insurance premiums necessary to comply with this Paragraph 13; and (iv) Workers' Compensation or other insurance, if and to the extent required by law and in form and amounts required by law. (b) LANDLORD AS ADDITIONAL INSURED. All such insurance required to be maintained by Tenant shall name Landlord as an additional insured and shall be written with a company or companies reasonably satisfactory to Landlord, having a policyholder rating of at least "A" and be assigned a financial size category of at least "Class XIV" as rated in the most recent edition of "Best's Key Rating Guide" for insurance companies, and authorized to engage in the business of insurance in the state in which the Premises are located. Tenant shall deliver to Landlord copies of such policies and customary insurance certificates evidencing such paid-up insurance. Such insurance shall further provide that the same may not be canceled, terminated or modified unless the insurer gives Landlord and Landlord's mortgagee(s) at least sixty (60) days' prior written notice thereof. (c) LANDLORD'S INSURANCE. Landlord shall maintain in force, at all times during the Term of this Lease, a policy or policies of fire insurance to the extent of at least eighty percent (80%) of the insurable value of the Building. (d) INCREASE IN PREMIUMS. If insurance premiums payable by Landlord or any other tenant are increased as a result of any breach of Tenant's obligations under this Lease or as a result of Tenant's use and occupancy of the Premises, Tenant shall pay to Landlord an amount equal to any increase in such insurance premiums. 14. WAIVER OF SUBROGATION. Neither Landlord nor Tenant shall be liable to the other for any business interruption or any loss or damage to property or in any manner growing out of or connected with Tenant's use and occupation of the Premises, the Building or the Property or the condition thereof, or of the adjoining property, whether or not caused by the negligence or other fault of Landlord or Tenant or of their respective agents, employees, subtenants, licensees or assignees; provided, however, that this release shall apply only to the extent that such business interruption or loss or damage is covered by insurance, regardless of whether such insurance is payable to or protects Landlord or Tenant or both. Nothing in this Paragraph 14 shall be construed to impose any other or greater liability upon either Landlord or Tenant than would have existed in the absence hereof. Because this Paragraph 14 will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person), each party to this Lease agrees immediately to give to each insurance company that has issued to its policies of fire and extended coverage insurance, written notice of the terms of the mutual waivers contained in this paragraph, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages because of the mutual waivers contained in this Paragraph 14. 15. HOLDING OVER. If Tenant retains possession of the Premises or any part thereof after the termination of this Lease, Tenant shall, from that day forward, be a tenant from month to month and Tenant shall pay Landlord rent at two (2) times the monthly rate in effect immediately prior to the termination of this Lease for the time the Tenant remains in possession. No acceptance of rent by, or other act or statement whatsoever on the part of the Landlord or its agent or employee, in the absence of a writing signed by the Landlord, shall be construed as an extension of or as a consent for further occupancy. Tenant shall indemnify Landlord for all damages, consequential as well as direct, sustained by reason of Tenant's retention of possession. The provisions of this Paragraph 15 do not exclude pursuit of Landlord's right of re-entry or any other right hereunder. 12 16. ASSIGNMENT AND SUBLEASE. (a) PROHIBITION. Tenant shall not assign, convey, mortgage, pledge, encumber or otherwise transfer this Lease or any interest therein, sublet the Premises or any part thereof, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, without receiving Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Any purported transfer, encumbrance, pledge, mortgage, assignment or subletting not in compliance herewith shall be void and of no force or effect. In the event of any assignment, subletting, transfer or occupancy by someone other than Tenant, whether or not expressly or impliedly approved by Landlord, Tenant shall, nevertheless, at all times, remain fully responsible and jointly and severally liable for the payment of the rent and for compliance with all other obligations imposed upon Tenant under the terms, provisions and covenants of this Lease. Any assignment or sublease shall contain a provision whereby the assignee or subtenant agrees to comply with and be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease to the extent applicable, and Tenant shall deliver to Landlord, promptly after execution, an executed copy of each assignment or sublease and an agreement of compliance by each assignee or subtenant. Any sublease shall also contain a provision that in the event of default by Tenant hereunder and a termination of this Lease by Landlord, such subtenant shall, at Landlord's option, attorn to Landlord as if Landlord were the lessor under the sublease. (b) OPTION TO CANCEL. Upon receipt of Tenant's written request for Landlord's consent to subletting, assignment, transfer or occupancy by someone other than Tenant, Landlord shall have the option to cancel this Lease as of the date the requested subletting, assignment, transfer or occupancy by someone other than Tenant is to be effective. Landlord shall exercise its option to cancel this Lease by written notice to Tenant within thirty (30) days after Landlord receives Tenant's request for Landlord's consent. (c) RIGHT TO COLLECT RENTS DIRECTLY. Upon the occurrence of an "event of default" as set forth in Paragraph 21 hereof, if all or any part of the Premises is then assigned, sublet, transferred or occupied by someone other than Tenant, then, in addition to any other remedies provided in this Lease or provided by law, Landlord, at its option, may collect directly from the assignee, subtenant, transferee or occupant all rent becoming due to Tenant by reason of the assignment, sublease, transfer or occupancy. Any collection directly by Landlord from the assignee or subtenant shall not be construed to constitute a novation or a release of Tenant from the further performance of its obligations under this Lease. (d) EXCESS RENT. If Tenant assigns this lease or sublets all or a portion of the Premises for an amount in excess of the Base Rental, additional rental and other charges (or the pro rata share of all such rental in the case of a sublease of a portion of the Premises), the Tenant shall pay to Landlord, as rent, one hundred percent (100%) of such excess received by Tenant. 17. QUIET ENJOYMENT. If Tenant shall pay the rents and other sums due to be paid by Tenant hereunder as and when the same become due and payable, and if Tenant shall keep, observe and perform, Tenant shall, at all times during the Term herein granted, peacefully and quietly have and enjoy possession of the Premises without any encumbrance or hindrance by, from or through Landlord, except for regulations imposed by any governmental or quasi-governmental agency on the occupancy of Tenant or the conduct of Tenant's business operations. 18. COMPLIANCE WITH LAWS AND WITH RULES AND REGULATIONS. (a) LAWS. Tenant, at its sole cost and expense, shall procure any permits and licences required for the transaction of Tenant's business in the Premises. Tenant, at its sole cost and expense, shall promptly observe and comply with all present and future laws, ordinances, requirements, orders, directives, rules and regulations of all state, federal, municipal and other agencies or bodies having jurisdiction relating to the use, condition and occupancy of the Premises, the Building and the Property at any time in force, applicable to the Premises or to 13 Tenant's use thereof, except that Tenant shall not be under any obligation to comply with any law, ordinance, rule or regulation requiring any structural alteration of the Premises, unless such alteration is required because of a condition that has been created by, or at the instance of, Tenant, or is required by reason of a breach of any of Tenant's covenants and agreements under this Lease. Landlord shall not be required to repair any injury or damage by fire or other cause, or to make any repairs or replacements of any panels, decoration, office fixtures, railing, ceiling, floor covering, partitions, or any other property installed in the Premises by Tenant. (b) RULES AND REGULATIONS. Tenant shall comply with all rules and regulations for the Building, which current rules and regulations are attached hereto as Exhibit F and with such reasonable modifications thereof and additions thereto as Landlord may make hereafter, from time to time. Notwithstanding anything contained in this Lease, Landlord shall not be responsible nor liable to Tenant, it agents, representatives, employees, invitees or licensees, for the nonobservance by any other tenant of any rules and regulations. 19. FIRE AND CASUALTY. (a) If the Premises or the Building or any substantial part of either is damaged or destroyed by fire or other casualty, cause or condition whatsoever, and such damage or destruction cannot be repaired within one hundred twenty days (120) days, Landlord or Tenant may terminate this Lease, by written notice to the other party given within thirty (30) days after such damage. If the Premises are damaged or destroyed or access thereto or use thereof is affected by the damage, then Landlord's or Tenant termination shall be effective as of the date of such damage; otherwise said termination shall be effective thirty (30) days after such notice. (b) If the Common Areas in the Building are damaged or destroyed by fire or other casualty, cause or condition whatsoever, to such an extent as to substantially interfere with Tenant's use of the Premises or if the Premises or a substantial part thereof are made untenantable, and such damage or destruction cannot be repaired within one hundred twenty (120) days, then Tenant may terminate this Lease by giving written notice to Landlord within thirty (30) days after such damage, said termination to be effective as of the date of such damage. (c) Unless this Lease is terminated as herein above provided, Landlord shall proceed with due diligence to restore, repair and replace the Premises and the Building to the same condition as they were in as of the Commencement Date. Provided such damage or destruction was not caused or contributed to by an intentional act or negligence of Tenant, its agents, employees, invitees or those for whom Tenant is responsible, from and after the date of such damage to date of completion of said repairs, replacements and restorations, a just proportion of the rent shall abate according to the extent the full use and enjoyment of the Premises are rendered impossible by reason of such damage. Landlord shall be under no duty to restore any alterations, improvements or additions made by Tenant. In all cases, due allowance shall be given to Landlord for any reasonable delays caused by adjustment of insurance loss, strikes, labor difficulties or any cause beyond Landlord's control. 20. EMINENT DOMAIN (a) If all the Premises or a substantial part thereof shall be taken for any public or quasi-public use under any statute or by rights of eminent domain or by private purchase in lieu thereof, this Lease shall terminate as of the date of vesting of title. Landlord shall be entitled to receive the entire award paid for such taking or condemnation, Tenant hereby assigning to Landlord all Tenant's rights, title and interest therein, if any. Nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant for the taking of personal property or fixtures belonging to Tenant, for the interruption of or damage to Tenant's business or for Tenant's moving expenses but only if such award shall be in addition to the award for the Property and the Building (or portion thereof) containing the Premises. (b) If fifty percent (50%) or more of the Building other than the Premises shall be condemned, taken or purchased in lieu thereof, then Landlord may terminate this Lease by notifying Tenant of such termination within sixty (60) days after the date of vesting of title. This Lease shall expire on the date specified in such notice of 14 termination, which date shall be not less than sixty (60) days after the giving of such notice. The rent hereunder shall be apportioned as of such termination date. (c) If more than thirty percent (30%) of the surface parking area of the Property is condemned, taken or purchased in lieu thereof, either party shall have the right to terminate this Lease upon giving written notice to the other party within thirty (30) days of such taking and this Lease shall terminate thirty (30) days after the date of such notice. (d) Any such taking, condemnation or temporary requisition which does not result in a termination of this Lease, as hereinbefore provided in this Paragraph 20, shall not be cause for any reduction or diminution of the rental payment hereunder. 21. DEFAULT. (a) If (i) Tenant fails to pay within five (5) days after notice any rent, or any other sums required to be paid hereunder by Tenant; or (ii) Tenant defaults in the performance or observance of any other agreement or condition on its part to be performed or observed, and Tenant shall fail to cure said default within twenty (20) days after receipt of written notice thereof by Landlord within such longer period of time as may be required to cure so long as Tenant commences such cure within twenty (20) days and diligently proceeds to cure, Tenant files a voluntary petition in bankruptcy or is adjudicated a bankrupt or insolvent, or files any petition or answer seeking any arrangement, composition, liquidation or dissolution under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors or seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or of the Premises, or makes any general assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they become due; or (iv) a court enters ;an order, judgment or decree approving a petition filed against Tenant seeking any arrangement, composition, liquidation, dissolution or similar relief under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, and such order, judgment or decree shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive); or (vi) Tenant fails to operate or closes its business upon the Premises, for reasons other than fire or other casualty or condemnation, for a period of fifteen (15) consecutive days; or (vii) Tenant abandons or vacates the Premises; then in any such event and at any time thereafter, Landlord may, without further notice to Tenant, and in addition to and not in lieu of any other rights or remedies available to Landlord at law or in equity, exercise any one or more of the following rights: (i) Landlord may (A) terminate this Lease and the tenancy created hereby by giving notice of such election to Tenant, and (B) reenter the Premises, by summary proceedings or otherwise, remove Tenant and all other persons and property from the Premises and store such property in a public warehouse or elsewhere at the sole cost and expense of and for the account of Tenant without Landlord being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. (ii) Landlord may reenter and take possession of the Premises, without terminating this Lease and without relieving Tenant of its obligations under this Lease, and divide or subdivide the Premises in any manner Landlord may desire and lease or let the Premises or portions thereof, alone or together with other premises, for such term or terms (which may be greater or less than the balance of the remaining portion of the Term of this Lease) and on such terms and conditions (which may include concessions or free rent and alterations of the Premises) as Landlord, in its discretion, may determine. (b) If this Lease is terminated by Landlord pursuant to this Paragraph 21, Tenant nevertheless shall remain liable for any Base Rental, Additional Rental, Other Charges required to be paid hereunder and damages that may be due or sustained prior to such termination, and for all reasonable costs, fees and expenses incurred by Landlord in pursuit of its remedies hereunder, including attorneys', brokers' and other professional fees (all such 15 rents, damages, costs, fees and expenses being referred to herein collectively as "Termination Damages") plus additional damages (the "Liquidated Damages") which are hereby stipulated to be equal to the present value of Base Rental, Additional Rental and Other Charges required to be paid hereunder that, but for termination of this Lease, would have become due during the remainder of the Term, plus the unamortized portion of tenant inprovements and leasing commissions, less the fair market rental rate for the remainder of the Term of this Lease discounted at the current five (5) year treasure bill rate. Termination Damages and Liquidated Damages shall be due and payable immediately upon demand by Landlord following any termination of this Lease pursuant to this Paragraph 21. (c) If Landlord reenters and takes possession of the Premises pursuant to this Paragraph 21, without terminating this Lease, and relets the Premises or any part thereof (which Landlord shall have no obligation to do), the net rentals from such letting shall be applied first to the costs, fees and expenses incurred by Landlord in pursuit of its remedies hereunder, including attorneys', brokers' and other professional fees, in renting the Premises or part thereof to others from time to time (including the cost and expense of making such improvements to the Premises as may be necessary, in Landlord's sole discretion, to enable Landlord to relet same). The balance, if any, shall be applied by Landlord from time to time on account of the rent and other payments due from Tenant hereunder, with the right reserved to Landlord to bring such actions or proceedings for the recovery of any deficits remaining unpaid as Landlord may deem favorable from time to time without being obligated to await the end of the Term for the final determination of Tenant's account. Any balance remaining, however, after full payment and liquidation of Tenant's account as aforesaid shall be paid to Tenant with the right reserved to Landlord at any time to give notice in writing to Tenant of Landlord's election to cancel and terminate this Lease and the giving of such notice and the simultaneous payment by Landlord to Tenant of any credit balance in Tenant's favor that may at the time be owing to Tenant shall constitute a final and effective cancellation and termination of this Lease and the obligations hereunder on the part of either party to the other. Landlord shall not be liable for, nor shall Tenant's obligations be diminished by reason of, any failure by Landlord to relet the Premises or any failure of Landlord to collect any rent due upon such reletting. (d) Upon the termination of this Lease or of Tenant's right to possession of the Premises by lapse of time or earlier termination as herein provided, Tenant shall remove its property from the Premises. Any such property of Tenant not removed from the Premises by Tenant within thirty (30) days after the end of the term or of Tenant's right to possession of the Premises, however terminated, whichever occurs earlier, shall be conclusively deemed to have been forever abandoned by Tenant and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit. (e) Notwithstanding anything contained herein, if Landlord shall have given written notice of three (3) defaults in any twelve (12) month period, no further prior notice by Landlord shall be required for Landlord to declare this Lease to be in default. (f) If Tenant at any time fails to make any payment or perform any other act on its part to be made or performed under this Lease, Landlord may, but shall not be obligated to, and after reasonable notice or demand and without waiving or releasing Tenant from any obligations under this Lease, make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith to pay expenses and employ counsel. Tenant shall pay upon demand all of Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligations hereunder or incurred by Landlord in any litigation, negotiations or transactions in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned, which amount shall be deemed to be rent due and payable by Tenant, upon demand by Landlord, and Landlord shall have the same rights and remedies for the nonpayment thereof, as in the case of default in the payment of rent. (g) All rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. In addition to the other remedies in this Lease provided, Landlord shall be entitled to the restraint by injunction of the violation or attempted violation of any of the covenants, agreements or conditions of this Lease. 16 22. WAIVER OF DEFAULT OR REMEDY. No waiver of any covenant or condition or of the breach of any covenant or condition of this Lease shall be taken to constitute a waiver of any subsequent breach of such covenant or condition nor to justify or authorize the nonobservance of any other occasion of the same or of any other covenant or condition hereof, nor shall the acceptance of rent by Landlord at any time when Tenant is in default under any covenant or condition hereof be construed as a waiver of such default or of Landlord's right to terminate this Lease on account of such default, nor shall any waiver or indulgence granted by Landlord to Tenant be taken as an estoppel against Landlord, it being expressly understood that if at any time Tenant shall be in default in any of its covenants or conditions hereunder an acceptance by Landlord of rental during the continuance of such default or the failure on the part of Landlord promptly to avail itself of such rights or remedies as Landlord may have, shall not be construed as a waiver of such default, but Landlord may at any time thereafter, if such default continues, terminate this Lease or assert any other rights or remedies available to it on account of such default in the manner hereinbefore provided. 23. LANDLORD'S LIEN. As security for Tenant's payment of rent, damages and all other payments required to be made by Tenant pursuant to this Lease, Tenant hereby grants to Landlord a lien upon all property of Tenant now or subsequently located upon the Premises. If Tenant abandons or vacates any substantial portion of the Premises or is in default in the payment of any rental, if such default is not cured within applicable notice or cure periods damage or other payments required to be made pursuant to this Lease, Landlord may enter upon the Premises, by force if necessary, and take possession of all or any part of the personal property, and may sell all or part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Tenant, sell and convey all or part of the personal property delivering to the highest bidder all of Tenant's title and interest in the personal property sold. The proceeds of the sale of the personal property shall be applied by Landlord toward the cost of the sale and then toward the payment of all sums then due by Tenant to Landlord pursuant to the terms of this Lease. 25. FORCE MAJEURE. If Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any act required hereunder (other than the payment of rent and other charges payable by Tenant) by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, riots, insurrection, the act, failure to act or default of the other party, war or any other reason beyond the reasonable control of the party who is seeking additional time for the performance of such act, then performance of such act shall be excused for the period of the delay and the period for the performance of such act shall be extended for a reasonable period, in no event to exceed a period equivalent to the period of such delay. No such interruption of any service to be provided by Landlord shall ever be deemed to be an eviction, actual or constructive, or disturbance of Tenant's use and possession of the Premises, the Building or the Property. 26. SUBORDINATION OF LEASE. (a) Landlord reserves the right and privilege to subject and subordinate this Lease to any and all mortgages, deeds of trust or land leases now existing upon or that may be hereafter placed upon the Premises and the Property and to all advances made or to be made thereon and all renewals, modifications, consolidations, replacements or extensions thereof and if such right is exercised, the lien of any such mortgages, deeds of trust or land leases shall be superior to all rights hereby or hereunder vested in Tenant, to the full extent of all sums secured thereby. In confirmation of such subordination, Tenant shall, on request of Landlord or the holder of any such mortgages, deed(s) of trust and land leases, execute and deliver to Landlord within ten (10) days any instrument that Landlord or such holder may reasonably request. 17 (b) If the interest of Landlord under this Lease shall be transferred by reason of foreclosure, deed in lieu of foreclosure, or other proceedings for enforcement of any first mortgage or deed of trust on the Premises, Tenant shall be bound to the transferee (the "Purchaser") under the terms, covenants and conditions of this Lease for the balance of the Term remaining, and any extensions or renewals, with the same force and effect as if the Purchaser were the landlord under this Lease, and at the option of Purchaser, Tenant shall attorn to the Purchaser (including the mortgagee under any such mortgage, if it be the Purchaser), as its landlord, the attornment to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon the attornment, to the extent of the then remaining balance of the Term of this Lease, and any extensions and renewals, shall be and are the same as those set forth in this Lease. 27. NOTICES AND CONSENTS. All notices, demands, requests, consents and approvals that may or are required to be given by either party to the other shall be in writing and shall be deemed given when sent by United States certified or registered mail, postage prepaid, or by overnight courier (a) if for Tenant, addressed to Tenant at the Building, or at such other place as Tenant may from time to time designate by notice to Landlord, or (b) if for Landlord, addressed to Trammell Crow Company, 301 Congress Avenue, Suite 1300, Austin, Texas 78701 Attention: Stan Erwin with a copy to Landlord, c/o OTR, 275 East Broad Street, Columbus, Ohio 43215, Attention: Real Estate Manager, or at such other place as Landlord may from time to time designate by notice to Tenant. All consents and approvals provided for herein must be in writing to be valid. Notice shall be deemed to have been given if addressed and mailed as above provided on the date two (2) days after deposit in the United States mail or one (1) day after deposit with an overnight courier. 28. SECURITY DEPOSIT. (a) Tenant has deposited with Landlord the sum of TEN THOUSAND ONE HUNDRED SEVENTY ONE DOLLARS & 95/100 ($10,171.95) as security for the full and faithful performance of every provision of this Lease to be performed by Tenant. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent, Landlord may use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default or for the payment of any other amount that Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss, cost or damage that Landlord may suffer by reason of Tenant's default. If any portion of said deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount and Tenant's failure to do so shall be a default under this Lease. Landlord shall not, unless otherwise required by law, be required to keep this security deposit separate from Landlord's general funds, nor pay interest to Tenant. If Landlord is required by law to maintain said deposit in an interest bearing account, Landlord will retain the maximum amount permitted under applicable law as a bookkeeping and administrative charge. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Tenant (or, at Landlord's option, to the last transferee of Tenant's interest hereunder) at the expiration of the Lease Term and upon Tenant's vacation of the Premises. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, such security deposit shall be deemed to be applied first to the payment of rent and other charges due Landlord for all periods prior to filing of such proceedings. (b) Landlord may deliver the security deposit to the purchaser of Landlord's interest in the Premises in the event that such interest be sold and thereupon Landlord shall be discharged from any further liability with respect to such deposit, and this provision shall also apply to any subsequent transferees of Landlord. 29. MISCELLANEOUS TAXES. Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon its occupancy of the Premises, or upon the fixtures, furnishings, equipment and all other personal property of Tenant located in the Premises, if nonpayment thereof shall give rise to a lien on the Premises, and when possible Tenant shall cause said fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the property of Landlord. In the event any or all of Tenant's fixtures, furnishing, equipment and other personal property, or upon Tenant's occupancy of the Premises, shall be assessed and taxed with the property of Landlord, Tenant shall pay to Landlord its share 18 of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's fixtures, furnishings, equipment or personal property. 19 31. BROKERAGE COMMISSION. Except for any broker, agent or other person named below, Landlord and Tenant represent and warrant each to the other that each has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction. Landlord hereby agrees to pay to TRAMMEL CROW MANAGEMENT COMPANY, INC. ("Agent") a leasing commission as set forth in that certain Property Management Agreement between Landlord and Agent. Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any other broker, agent or other person (including, without limitation, Co-op Broker) claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this leasing transaction. The provisions of this Paragraph 31 shall survive the termination of this Lease. 32. HAZARDOUS DEVICES AND CONTAMINENTS. (a) PROHIBITION. Except with the prior written consent of Landlord, Tenant shall not install or operate any steam or internal combustion engine, boiler, machinery, refrigerating or heating device or air- conditioning apparatus in or about the Premises, or carry on any mechanical business therein. Except for Contaminants (as hereinafter defined) used in the ordinary course of business and in compliance with Requirements of Law (as hereinafter defined), Tenant and its agents, employees, contractors and invitees shall not use, store, release, generate or depose of or permit to be used, stored, released, generated or disposed of any Contaminants on or in the Premises. (b) INDEMNIFICATION. Tenant shall indemnify and hold harmless Landlord, its agents, servants, employees, officers and directors forever from and against any and all liability, claims, demands and causes of action, including, but not limited to, any and all liability, claims, demands and causes of action by any governmental authority, property owner or any other third person and any and all expenses, including attorneys' fees (including, but not limited to, attorneys' fees to enforce Tenant's obligation of indemnification under this Paragraph 32(b)), relating to any environmental liability resulting from (i) any Release (as hereinafter defined) of any Contaminant at the Premises or emanating from the Premises to adjacent properties or the surrounding environment during the Term of this Lease; (ii) during the Term of this Lease, any generation, transport, storage, disposal, treatment or other handling of any Contaminant at the Premises, including, but not limited to, any and all off-site transport, storage, disposal, treatment or other handling of any Contaminant generated, produced, used and/or originating in whole or in part from the Premises; and (iii) any activities at the Premises during the Term of this Lease that in any way might be alleged to fail to comply with any Requirements of Law. Provided however, this indemnity shall exclude preexisting conditions, as of the date of this lease, and any such environmental liability to the extent caused by the negligent act of omission of Landlord or its servants, agents or employees. 20 (d) DEFINITIONS. (i) "Contaminant" shall mean any substance or waste containing hazardous substances, pollutants, and contaminants as those terms are defined in the federal Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. and any substance similarly defined or identified in any other federal, provincial or state laws, rules or regulations governing the manufacture, import, use, handling, storage, processing, release or disposal of substances or wastes deemed hazardous, toxic, dangerous or injurious to public health or to the environment. This definition includes friable asbestos and petroleum or petroleum-based products. (ii) "Requirements of Law" shall mean any federal, state or local law, rule, regulation, permit, agreement, order or other binding determination of any governmental authority relating to the environment, health or safety. (iii) "Release" shall have the same meaning as in the federal Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. 33. EXCULPATION. This Lease is executed by certain general partners of Landlord, not individually, but solely on behalf of, and as the authorized nominee and agent for STRBO, and in consideration for entering into this Lease, Tenant hereby waives any rights to bring a cause of action against the individuals executing this Lease on behalf of Landlord (except for any cause of action based upon lack of authority or fraud), and all persons dealing with Landlord must look solely to STRBO's assets for the enforcement of any claim against Landlord, and the obligations hereunder are not binding upon, nor shall resort be had to the private property of any of, the trustees, officers, directors, employees or agents of STRBO. 34. SIGNS. Tenant shall not display, inscribe, print, paint, maintain or affix on any place in or about the Building any sign, notice, legend, direction, figure or advertisement, except on the doors of the Premises, and then only such name(s) and matter, and in such color, size, place and materials, as shall first have been approved by Landlord in writing. Landlord reserves the right to install and maintain a sign or signs on the exterior or interior of the Building. If Tenant desires, Landlord shall list Tenant on the Building directory board, at Tenant's sole cost and expense. 35. LOCKS. No additional locks or similar devices shall be attached to any door or window without Landlord's prior written consent. Except for those keys provided by Landlord, no keys for any door shall be made. If more than two keys for one lock are desired, Landlord will provide the same upon payment by Tenant. All keys must be returned to Landlord at the expiration or Termination of this Lease. Tenant shall see that the doors and windows, if operable, of the Premises are closed and securely locked before leaving the Building. 36. EMPLOYMENT. Tenant shall not contract for any work or service that might involve the employment of labor incompatible with the Building employees or employees of contractors doing work or performing services by or on behalf of Landlord. 37. PLUMBING. Tenant must observe strict care and caution that all water faucets and water apparatus are shut off before Tenant or its employees leave the Building to prevent waste or damage. Plumbing fixtures and appliances shall be used only for purposes for which constructed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Tenant shall be paid by Tenant and Landlord shall not in any case be responsible therefor. 38. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following rights: (a) To name the Building and to change the name or street address of the Building; 21 (b) To designate all sources furnishing sign painting and lettering, ice, drinking water, towels, toilet supplies, shoe shining, vending machines, mobile vending service, catering, and like services used on the Premises or in the Building; (c) On reasonable prior notice to Tenant, to exhibit the Premises to prospective tenants during the last twelve (12) months of the Term, and to exhibit the Premises to any prospective purchaser, mortgagee, or assignee of any mortgage on the Property and to others having a legitimate interest at any time during the Term; and (d) To install vending machines of all kinds in the Property, including, without limitation, the Premises, and to provide mobile vending service therefor, and to receive all of the revenue derived therefrom; provided, however, that no vending machines shall be installed by Landlord in the Premises nor shall any mobile vending services be provided therefor, unless Tenant so requests. 39. MISCELLANEOUS. (a) No receipt of money by Landlord from Tenant after the termination of this Lease or after the service of any notice or after the commencement of any suit, or after final judgment for possession of the Premises shall reinstate, continue or extend the Terms of this Lease or affect any such notice, demand or suit or imply consent for any action for which Landlord's consent is required. (b) The term "Landlord" as used in this Lease, as far as covenants or agreements on the part of Landlord are concerned, shall be limited to mean and include only the owner (or ground lessor, as the case may be) for the time being of the Premises. If the Premises or the underlying lease, if any, be sold or transferred, the seller thereof shall be automatically and entirely released of all covenants and obligations under this Lease from and after the date of conveyance or transfer, provided the purchaser on such sale has assumed and agreed to carry out all covenants and obligations contained in this Lease to be performed on the part of Landlord hereunder, it being hereby agreed that the covenants and obligations, contained in this Lease to be performed on the part of Landlord, hereunder it being hereby agreed that the covenants and obligations contained in this Lease shall be binding under Landlord, its successors and assigns, only during their respective successive period of ownership. (c) It is understood that Landlord may occupy portions of the Building in the conduct of Landlord's business. In such event, all references herein to other tenants of the Building shall be deemed to include Landlord as occupant. (d) All of the covenants of Tenant hereunder shall be deemed and construed to be "conditions" as well as "covenants" as though the words specifically expressing or implying covenants and conditions were used in each separate instance. (e) In the event of variation or discrepancy among counterparts, Landlord's original copy of this Lease shall control. (f) This Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided that this provision shall in no manner enlarge Tenant's rights of assignment, which right of assignment has been restricted under the foregoing provisions of this Lease. 40. RELATIONSHIP OF PARTIES. Any intention to create a joint venture, partnership or principal and agent relationship between the parties hereto is hereby expressly disclaimed. This Lease shall create the relationship of landlord and tenant between Landlord and Tenant. 41. GENDER AND NUMBER. Whenever words are used herein in any gender, they shall be construed as though they were used in the gender appropriate to the context and circumstances, and whenever words are used herein in the singular or plural form, they shall be construed as though they were used in the form appropriate to the context and the circumstances. 22 42. TOPIC HEADINGS. Headings and captions in this Lease are inserted for convenience and reference only and in no way define, limit or describe the scope or intent of this Lease nor constitute any part of this Lease and are not to be considered in the construction of this Lease. 43. COUNTERPARTS. Several copies of this Lease may be executed by all of the parties. All executed copies constitute one and the same Lease, binding upon all parties. 44. ENTIRE AGREEMENT. This Lease contains the entire understanding between the parties and supersedes any prior understanding or agreements between them respecting the subject matter. No representations, arrangement, or understandings except those fully expressed herein, are or shall be binding upon the parties. No changes, alterations, modifications, additions or qualifications to the terms of this Lease shall be made or be binding unless made in writing and signed by each of the parties. 45. RECORDING. The parties agree that this Lease shall not be recorded, but a Short Form Lease or Memorandum of Lease, complying in form with applicable state law, shall be executed setting forth the description of the Premises, the Term of this Lease and other pertinent provisions, which Short Form Lease or Memorandum of Lease may be recorded by either party in lieu of recordation of this Lease. 46. GOVERNING LAW; INVALIDITY OF ANY PROVISIONS. This Lease shall be subject to and governed by the laws of the state in which the Premises are located. If any term or provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the other terms of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written. TENANT: LANDLORD: NOVELLUS SYSTEMS, INC. OTR, an Ohio general partnership, acting as the duly authorized nominee of the BOARD OF THE STATE TEACHES RETIREMENT SYSTEM OF OHIO /s/John P. Root By: /s/? - ------------------------------------- ---------------------------------------- OTR, a general partner ------------------ Witness: Witness: /s/ Robert E. Standish /s/ Pamela J. McCamron - ----------------------------------- ---------------------------------------- 5375 Branciforte Dr. /s/ Hollie ? - ----------------------------------- ---------------------------------------- Santa Cruz, CA 95065 - ----------------------------------- 23 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT STATE OF CALIFORNIA } } ss. COUNTY OF } On this 25TH day of APRIL, 1995 Before me, R.E. Standish, Notary Public, personally appeared JOHN P. ROOT / / Personally known to me-OR-/X/ proved to me on the basis of satisfactory evidence to be the person /s whose name /s is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacities, and that by his/her/their signature /s on the instrument the person /s or the entity upon behalf of which the person /s acted, executed the instrument. [SEAL] WITNESS my hand and official seal /s/ R. E. Standish -------------------------------------------- R. E. Standish, Notary Public (SEAL) THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW: TITLE OR TYPE OF DOCUMENT LEASE ----------------------------------------------------- NUMBER OF PAGES THIRTY-SEVEN (37) DATE OF DOCUMENT APRIL 25, 1995 ------------------ ---------------------- SIGNER(S) OTHER THAN NAMED ABOVE OTR ---------------------------------------------- / / INDIVIDUAL /x/ CORPORATE OFFICER(S) TITLE(S) TREASURER -------------------- / / PARTNER(S) / / LIMITED / / GENERAL / / ATTORNEY-IN-FACT / / TRUSTEE(S) / / TRUSTOR(S) / / BENEFICIARY(S) / / GUARDIAN/CONSERVATOR / / OTHER: ---------------------------------------------------------------------- SIGNER IS REPRESENTING: NOVELLUS -------------------------------------------------------- STATE OF OHIO ) ) SS: COUNTY OF ) BE IT REMEMBERED, that on this 26th day of MAY, 1995 before me, the subscriber, a Notary Public, personally appeared the above-named OTR, an Ohio general partnership by STEPHEN A. MITCHELL, a general partner, known to me and known to me to be the person who signed the foregoing instrument as such partner, who acknowledged to me that he signed said instrument as such partner, duly authorized by the partnership so to do, and that the signing of the same was his free act and deed, as such partner, for and on behalf of said partnership, for the uses and purposes therein set forth. IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the official seal of my office at COLUMBUS, OHIO, on the day and year last above written. [SEAL] Pamela J. McCamron ---------------------------------------- Notary Public STATE OF____________ ) ) SS: COUNTY OF __________ ) BE IT REMEMBERED, that on this ____ day of ___, 19__ before me, the subscriber, a Notary Public, personally appeared the above-named _______________ organized under the laws of the State of _______________ by ___________________, its _________________, known to me to be the person who signed the foregoing instrument as such ___________, who acknowledged to me that ________ signed said instrument as such ___________, duly authorized by the _________________________ of said ___________________ so to do, and that the signing of the same was _____ free act and deed, as such officer, for and on behalf of said _________________, for the uses and purposes therein set forth. IN TESTIMONY WHEREOF, I have hereunto subscribed by name and affixed the official seal of my office at ______________, _______________, on the day and year last above written. ---------------------------------------- Notary Public 24 EXHIBIT A [FLOOR PLAN CHART] EXHIBIT B LEGAL DESCRIPTION Lot 1 and a portion of Lot 2 of Crow Industrial Park South, Section Two, Plat Book 81, Page 135, Plat Records of Travis County, Texas, more commonly referred to as 1701 Directors Boulevard, Austin, Texas 78744. EXHIBIT C COMMENCEMENT DATE AGREEMENT THIS COMMENCEMENT DATE AGREEMENT ("Agreement") dated __________, 199_ is between OTR, an Ohio general partnership, whose address is 275 East Broad Street, Columbus, Ohio 43215, acting as the duly authorized nominee of The State Teachers Retirement System of Ohio ("Landlord"), whose address is 275 East Broad Street, Columbus, Ohio 43215, and ____________________________, a ______________ ("Tenant") whose address is ________________________________. WITNESSETH: A. Landlord and Tenant executed a certain Lease dated ________, 199_ (the "Lease"). B. The Lease provides that the Lease will commence on the date that Landlord delivers possession of the Premises (as defined in the Lease) to Tenant. C. Landlord and Tenant now desire to set forth in writing the actual date of delivery of the Premises and the actual commencement date of the Lease. NOW THEREFORE in consideration of the mutual covenants and promises contained herein and other valuable consideration, the parties agree that the Lease commenced on ___________, 199_ and shall terminate on ___________, ______. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on the day and year first above written. Signed and Acknowledged LANDLORD: OTR, an Ohio general the Presence of partnership acting as the duly authorized nominee of The State Teachers Retirement System of Ohio __________________________________ By: _______________________________ ___________________________________ ____________________, a general partner TENANT: ________________________________________ __________________ a ___________________ ___________________________________ By: ____________________________________ ___________________________________ Its: __________________________________ Exhibit C - Page 1 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) BE IT REMEMBERED, that on this ____ day of ___________, 199_, before me, the subscriber, a Notary Public, personally appeared the above-named OTR, ,a partnership organized under the laws of the State of Ohio, by Stephen A. Mitchell, a general partner, known to me and known to me to be the person who signed the foregoing instrument as such partner, who acknowledged to me that he signed said instrument as such partner, duly authorized by the partnership so to do, and that the signing of the same was his free act and deed, as such partner, for and on behalf of said partnership, for the uses and purposes therein set forth. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the official seal of my office at Columbus, Ohio, on the day and year last above written. ---------------------------------------- Notary Public STATE OF ___________ ) ) SS: COUNTY OF __________ ) BE IT REMEMBERED, that on this ___ day ___________, 19__, before me, the subscriber, a Notary Public and for said County and State, personally appeared the above-named ________________ organized under the laws of the State of _____________ by _____________________, its _________________, known to me and known to me to be the person who signed the foregoing instrument as such ___________, who acknowledged to me that _______ signed said instrument as such ________, duly authorized by the ____________________ of said __________________ so to do, and that the signing of the same was ______ free act and deed, as such officer, for and on behalf of said _________________, for the uses and purposes therein set forth. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the official seal of my office at ____________, ____________, on the day and year last above written. ---------------------------------------- Notary Public Exhibit C - Page 2 EXHIBIT D TENANT IMPROVEMENTS Subject to the conditions hereinafter set forth, Landlord will provide Tenant with an allowance of up to $39,500 for improvements required to the premises the "Tenant Improvement Allowance". This Tenant Improvement Allowance is meant to be comprehensive including but not limited to architectural and engineering fees, actual construction material and labor, and a fee of 5% of the total construction costs to reimburse Landlord for its management of construction and administrative costs. The Landlord neither presumes or insures that this allowance will completely cover the improvements as contemplated by Tenant, but it is the amount of Tenant Finish allowed based on the Basic Rental as proposed. For all purposes hereof, the premises contain 6,916 square feet Net Rentable Area. Tenant recognizes that all improvements to the Premises not paid for directly by Tenant shall remain the property of the Landlord. Landlord will recognize that any improvements that are paid for by Tenant, and evidence is provided of such, which are not considered fixtures and can be removed without damage to the Premises, shall remain the property of Tenant. EXHIBIT E TENANT ESTOPPEL CERTIFICATE RE: Premises: ----------------------------------- Lease Dated: ----------------------------------- Amendment(s) Dated: ----------------------------------- Between (Landlord) ----------------------------------- and (Tenant) ----------------------------------- Square Footage Leased: ----------------------------------- Floor(s)/Suite #(s): ----------------------------------- The undersigned, Tenant under the above-referenced lease ("Lease"), certifies to the following: 1. We have taken possession of and accepted the Premises described above, except as follows: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- 2. The lease terms as described below are true and accurate, and the lease is in full force and effect: Base Rent: per year --------------------------------------- Expense Stop: per square foot --------------------------------------- Escalations: --------------------------------------- Free Rent: --------------------------------------- Commencement Date: --------------------------------------- Expiration Date: --------------------------------------- Renewals: --------------------------------------- 3. No part of the Premises has been subleased or assigned except as follows: --------------------------------------------------------------------------- --------------------------------------------------------------------------- 4. The rent has been paid through: ------------------------------------------- 5. The security deposit is --------------------------------------------------- There are no tax or insurance escrows ------------------------------------- 6. We are not in default of our obligations under the Lease. Landlord, to the best of our knowledge, is not in default of its obligations under the Lease. There exists no defense or counterclaim to rent or other sums required to be paid by us under or pursuant to the Lease. If Tenant is a corporation, the undersigned is a duly appointed officer of the corporation signing this certificate and is the incumbent in the office indicated under his/her name. In any event, the undersigned individual is duly authorized to execute this certificate. Date: , 19 Signed: ------------------ -- -------------------------------- (Signature) ---------------------------------------- (Print Name & Title) EXHIBIT F RULES AND REGULATIONS The following rules and regulations shall apply, where applicable, to the Property and to each portion thereof: (1) Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by tenants or used by any tenant for any purpose other than ingress and egress to and from the premises and for going from one to another party of the Property. (2) Plumbing, fixtures and appliances shall be used for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable materials shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by a tenant or such tenant's agents, employees or invitees shall be paid by such tenant and Landlord shall not in any case be responsible therefor. (3) No signs, advertisements or notices shall be painted or affixed on or to any windows or doors or other exterior part of the Property (or be visible from any public or common area) unless they are of such color, size and style and in such places as shall be first approved in writing by Landlord. Landlord, at tenant's sole cost and expense, shall install all letters or numerals by or on doors in such tenant's leased premises which letters or numerals shall be in building standard graphics. No nails, hooks or screws shall be driven or inserted in any part of the Building outside the premises except by the Building maintenance personnel nor shall any part of the Building be defaced by tenants. No curtains or other window treatments shall be placed between the glass and the building standard window treatments. (4) Landlord shall provide and maintain an alphabetical directory board for all tenants in the first floor (main lobby) of the Building and no other directory shall be permitted unless previously consented to by Landlord in writing. (5) Two keys to the locks on the corridor doors entering each tenant's leased premises shall be furnished by Landlord free of charge, with any additional keys to be furnished by Landlord to each tenant, at tenant's cost. Landlord shall provide all locks for other doors in each tenant's leased premises, at the cost of such tenant, and no tenant shall place any additional lock or locks on any door in or to its leased premises without Landlord's prior written consent. All such keys shall remain the property of landlord. Each tenant shall give to Landlord the explanation of the combination of all locks for safe, safe cabinets and vault doors, if any, in such tenant's leased premises. (6) With respect to work being performed by tenants in any leased premises with the approval of Landlord, all tenants will refer to all contractors, contractors' representatives and installation technicians rendering any service to them to Landlord for Landlord's supervision, approval and control before the performance of any contractual services. This provision shall apply to all work performed in the Building including, but not limited to, installation of telephones, telegraph equipment, electrical devices and attachments, doors, entranceways, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment and any other physical portion of the Building. (7) Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by tenants of any bulky material, merchandise or materials which requires use of elevators or stairways, or movement through the Building entrances or lobby shall be restricted to such hours as Landlord shall designate. All such movements shall be under the supervision of Landlord and in the manner agreed between the tenants and Landlord by prearrangement before performance. Such pre-arrangement initiated by a tenant will include determination by Landlord, and subject to its decision and control, as to the time, method, and routing of movement and as to the limitations for safety or other concerns which may prohibit any article, equipment or any other item from being brought into the Building. The tenants are to assume all risks as to the damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for a tenant from time of entering the property to completion of work: and Landlord shall not be liable for acts of any person engaged in, or damage or loss to any of said property or persons resulting from, any act in connection with such service performed for a tenant. (8) Landlord shall have the right to prescribe the weight and position of safes and other heavy equipment or items, which shall in all cases, to distribute wight, stand on supporting devices approved by Landlord. All damages done to the Building by the installation or removal of any property of a tenant, or done by a tenant's property while in the Building, shall be repaired at the expense of such tenant. Tenant shall bear all costs incurred by Landlord or Tenant in determining the feasibility or actual installation of any such heavy equipment. (9) A tenant shall notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building and the moving shall be done under the supervision o the Building manager after written permission from Landlord. Persons employed to move such property must be acceptable to Landlord. (10) Corridor doors, when not in use, shall be kept closed. (11) Each tenant shall cooperate with Landlord's employees in keeping its leased premises neat and clean. (12) Landlord shall be in no way responsible to the tenants, their agents, employees or invitees for any loss of property from the leased premises or public areas for any damages to any property thereon from any cause whatsoever. (13) To ensure orderly operation of the Building, no ice, mineral or other water, towels, newspapers, etc. shall be delivered to any leased area except by persons appointed or approved by Landlord in writing. (14) Should a tenant require telegraphic, telephonic, annunciator or other communication service, Landlord will direct the electrician where and how wires are to be introduced and placed and none shall be introduced or placed except as Landlord shall direct. Except as provided in each tenant's lease, electric current shall not be used for heating or nonstandard power requirements without Landlord's prior written permission. (15) Tenant shall not make or permit and improper objectionable or unpleasant noises or odors in the Building or otherwise interfere in any way with other tenants or persons having business with them. (16) Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. No birds or animals shall be brought into or kept in, on or about any tenant's leased premises. (17) No machinery of any kind shall be operated by tenant on its leased area without the prior written consent of Landlord, nor shall any tenant use or keep in the Building any inflammable or explosive fluid or substance. (18) no portion of any tenant's leased premises shall at any time be used or occupied as sleeping or lodging quarters. (19) Each tenant and its agents, employees and invitees shall park only in those areas designated by Landlord for parking by such Tenant and shall not park on any public or private streets contiguous to, surrounding or in the vicinity of the Building without Landlord's prior written consent. (20) Landlord will not be responsible for lot or stolen property, money or jewelry from tenant's leased premises or public or common areas regardless of whether such loss occurs when the area is locked against entry or not. EXHIBIT G SPECIAL PROVISIONS 1. Upon the commencement of this Lease, the Lease between Board of the State Teachers Retirement System of Ohio and Novellus Systems, Inc. dated August 31, 1993 shall be terminated effective on this Lease's Commencement Date, and neither Party shall have any further rights, duties or obligations thereunder to the other party for such Lease other than any and all obligations incurred up to the Commencement Date of this Lease. 2. FIRST RIGHT OF REFUSAL. If, during the primary term of this Lease, all or any part of the remaining space (the "First Refusal Space") on the NINTH (9TH) floor of the Building consisting of approximately 8,422 square feet of Net Rentable Area shall become available for lease and provided that no default or event of default by or with respect to Tenant then exists hereunder, Tenant shall have the first right and option to lease such additional space as such additional space becomes available for lease by Landlord, subject, however, to any extension, renewal and expansion options which may be contained in the lease agreements between Landlord and other tenants then occupying such additional space. When any such space becomes available for lease by Landlord, Landlord shall first offer to lease such space to Tenant at the First Refusal Rate (as hereinafter defined) and otherwise upon the same terms and conditions as would then be offered by Landlord to unrelated third parties in an arm's-length transaction, said offer to lease such additional space to Tenant to be made in writing by Landlord when such additional spaces become available for lease. The "First Refusal Rate" means the Adjusted Rental per square foot of NRA per annum to be charged to Tenant for the First Refusal Space and shall equal the greater of (a) the Adjusted Rental per square foot of NRA per annum which would then be offered by Landlord to unrelated third parties in an arm's-length transaction or (b) the same Adjusted Rental per square foot of NRA per annum which then and thereafter applies to the Premises pursuant to this Lease during the remainder of the term of this Lease and any renewal or extension thereof; provided, however, that if the provisions of this subparagraph (b) apply, the term of the lease for the First Refusal Space shall not extend beyond the remaining term of this Lease and any renewal or extension hereof. If, within seven (7) days after Landlord gives Tenant notice of the availability of the First Refusal Space, Tenant does not notify Landlord that Tenant elects to exercise its right to lease all of such space so offered on such terms and conditions, or if Tenant fails to execute a lease on such terms and conditions for such space within twenty (20) days thereafter, then Tenant's rights to lease the First Refusal Space shall terminate and expire. Notwithstanding the foregoing, Tenant's right to lease said space, may not be exercised at any time after Tenant, with or without the consent of Landlord, (A) assigns all or any portion of this Lease or (B) sublets more than twenty-five percent (25%) of the space located in the Premises for any length of time subsequent to that date which is twelve (12) months prior to when such additional space becomes available for lease, and (iii) shall not inure to the benefit of any assigns or subtenants of Tenant, whether or not any such assignee or subtenant has been approved by Landlord. Nothing herein shall imply that Tenant may assign or sublet all or any portion of this Lease or the Premises without the prior written consent of Landlord. 3. CANCELLATION OPTION. Tenant shall have the one time option to cancel this Lease Agreement with an effective date of 07/01/98 by providing the Landlord with notice of such exercise along with notice of Tenant's expansion requirements on or before March 1, 1998 as long as the Landlord is unable to provide "Adequate Expansion Space" within the building, hereby defined as the amount of space in Tenants notice plus or minus 15%. Upon notification of Tenants required expansion, the Landlord shall have 45 days to notify Tenant of their ability to provide or not to provide Adequate Expansion Space, and an additional 120 days to actually provide such space. If the Landlord is unable to provide Adequate Expansion Space, and Tenant subsequently leases new office space from a third party in Austin or the surrounding metropolitan area of at least the amount of space called for in their notification plus the original Lease Premises and provides evidence of such to Landlord, this Lease shall terminate on the effective date 07/01/98. EX-10.48 13 EXHIBIT 10.48 OFFICE RENTAL CONTRACT Landlord: Suh Won Building Management Company Tenant: Novellus Systems Korea Co., Ltd. ARTICLE 1 Tenant is renting a part of 2nd floor (9,074 square feet) of the rental property to use for an office space. The rental property is Suh Won Building and located at 57 Garak-Dong Songpa-Gu, Seoul, Korea. ARTICLE 2 Rental space is calculated including common space such as elevator, rest room, corridor, stairs, etc. ARTICLE 3 Rental period is from 2/1/95 to 1/31/97 (24 months). ARTICLE 4 Rental period may be extended by the agreement between landlord and tenant. ARTICLE 5 Payment plan for the security deposit is as follows: At the time of contract 20,000,000 won by 12/28/94 80,000,000 won by 1/31/95 100,000,000 won ----------- Total 200,000,000 won ----------- ----------- No interest will be paid on the security deposit ARTICLE 6 Security deposit will be refunded as soon as tenant clears leasehold improvement and moves out. ARTICLE 7 Monthly rental payment is 4,300,000 won and due by each month end. ARTICLE 8 Building maintenance fee is 2,550,000 won per month and is due by each month end. It includes general utilities and janitorial service (except for the office furniture cleaning). ARTICLE 9 Deleted 1 ARTICLE 10 Parking fee is free for the employees of tenant and 6 parking spaces are reserved for tenant. ARTICLE 11 Additional utilities may be requested by tenant and cost incurred in relation to this matter will be paid by tenant. ARTICLE 12 Tenant may not use the office as a residence. Tenant needs to notify landlord when working after 8 p.m. and on holidays. ARTICLE 13 Landlord will have a security guard to protect the common area but it is tenant's responsibility to safeguard tenant's assets unless landlord's negligence is proved. ARTICLE 14 Tenant is not supposed to do the activities which are harmful to the public and to the rental property. ARTICLE 15 Tenant should follow landlord's guideline to place its advertisement on the rental property. ARTICLE 16 The use of building facilities (e.g. elevators, etc.) will be limited on Sundays and holidays. ARTICLE 17 Tenant may improve the leased space with landlord's permission and the improvement cost should be born by tenant. ARTICLE 18 Tenant is prohibited to transfer the right of this contract to the third party without landlord's permission. ARTICLE 19 Landlord may terminate this contract when the following incidents are occurred: [bullet] Tenant is delinquent of the rental payment and building maintenance fee for at least two months. [bullet] Tenant uses the security deposit as a collateral. [bullet] Tenant is bankrupt. 2 ARTICLE 20 This contract will be terminated if the rental period is not extended by the end of the rental period. ARTICLE 21 Tenant should clear all improvements at its own cost when the contract is terminated and deliver the rented space to landlord at its original condition. ARTICLE 22 Landlord may move tenant's property to an appropriate place if tenant would not deliver the rented space upon termination of the contract. ARTICLE 23 Landlord is not responsible for the loss of tenant or the third party by the act of God or unless landlord's negligence is proved. ARTICLE 24 In case of dispute, this contract will be interpreted in reference to the governing law and the customs in Korea. ARTICLE 25 Any law suit arising from this contract should be filed with Seoul District Court and the appeal for the court decision is prohibited. ARTICLE 26 Landlord may delegate its management rights and responsibilities to the third party. ARTICLE 27 Deleted ARTICLE 28 This contract may not be registered with the court. November 28, 1994 Seals of landlord and tenant are affixed, respectively. 3 EX-10.49 14 EXHIBIT 10.49 [BORLAND MONTGOMERIE KEYDEN - LETTERHEAD] John Ellis, Esq Novellus Systems Limited 7 Marine Drive Barton on Sea New Milton Hants BH25 7EE AB/NR 21st February 1995 Dear Mr Ellis THE FORUM, CALLENDAR BUSINESS PARK, FALKIRK I refer to your telephone call and now enclose page 10 of the Lease which requires to be signed on behalf of your company to two Directors or one Director and one Secretary. I enclose schedule of Particulars of Signing for completion with the details of signing and look forward to hearing from you on your return from America. Kind Regards Yours sincerely /s/ Anne M. Blackstock ANNE M. BLACKSTOCK DIRECTIONS FOR EXECUTING DOCUMENTS BY LIMITED COMPANIES (UNDER THE LAW OF SCOTLAND) PLEASE PRINT COMPANY:----------------------------------------------------------------------- DOCUMENT:---------------------------------------------------------------------- IMPORTANT NOTES TO BE READ BEFORE THE ACCOMPANYING DOCUMENT IS SIGNED. The accompanying document requires to be signed on behalf of the company named above. Please read through the document carefully before it is signed. If there are any queries on the contents or alterations required, please contact immediately the person who sent you the document. The document must be signed on behalf of the company as follows:- 1) by two Directors; or 2) by a Director and the Secretary; or 3) by two persons authorised to sign on behalf of the company (authorised signatories); or 4) by a Director and an authorised signatory; or 5) by the Secretary and an authorised signatory. All signatories should sign their normal signature. A fountain pen or biro or other pen with indelible ink should be used. The document will consist of one or more pages and may have a schedule or schedules and plan(s) attached. The document should be signed as follows:- (a) at the end of the last page of text of the document (excluding attached schedule(s) and plan(s), if any); (b) at the end of each schedule, if any; and (c) on each plan, if any. Each page or plan to be signed will usually be marked with a pencil line and the words Director' or 'Director/Secretary' written in pencil. If you are unsure where to sign, then please contact immediately the person who sent you the document. Neither the company seal nor witnesses are required. Do not make any alterations to the document. Do not fill in any blanks. PLEASE COMPLETE THE SECTION OVERLEAF [NOVELLUS - LETTERHEAD] Miss A. M. Blackstock 3rd February 1995 Borland Montgomerie Keyden Apsley House 29 Wellington Street Glasgow G2 6JA Re: The Forum, Callendar Business Park, Falkirk Dear Miss Blackstock, Thank you for your letter dated 18th January 1995 concerning the engrossed Sub- Lease for the Falkirk office. I have signed the Sub-Lease as the only U.K. based director of Novellus Systems Ltd. The other two directors are based in our worldwide headquarters in California, U.S.A. Please let me know if there are any problems with the completed documentation. Yours sincerely, /s/ John Ellis John Ellis Novellus Systems Ltd. INSTRUCTIONS FOR EXECUTION OF DEEDS BY COMPANIES NOVELLUS SYSTEMS ------------------------------------------------------------ LIMITED 1 The Deed and the last page of any Plan, Schedule, Inventory or other annexation should be signed by either:- (i) Two Directors; or (ii) A Director and the Company Secretary; or (iii)Two persons authorised to sign on behalf of the Company. 2 The undernoted information should be entered in the spaces provided:- Place where Deed Executed 7 MARINE DRIVE, BARTON-ON-SEA -------------------------------------------- Date of Execution 2-2-95 -------------------------------------------- First Signatory /s/ John Ellis (Name in Full) -------------------------------------------- Official Position DIRECTOR/SECRETARY -------------------------------------------- Second Signatory (Name in Full) -------------------------------------------- Official Position -------------------------------------------- 3 If signed by two authorised signatories please give evidence (by way of certified copy Power of Attorney, certified Excerpt of Board Minute etc) of the authority of the authorised signatory to sign. 4 If it is proposed to execute the Deed otherwise than as indicated above (eg by one Authorised Signatury under a Power of Attorney) 2 witnesses will require to sign also but only on the last page of the narrative of the Deed. They should simply sign their names on the left opposite the other signatures writing the word "Witness" after their signature. Their full names, addresses and occupations should be added in the spaces overleaf. 5 On completion please return the Deed and the completed Instructions to: Mitchells Robertson [George House] ARE FOR USE ONLY IF WITNESSES ARE REQUIRED:- JOANNA COLLINGE /s/ Joanna Collinge -------------------------------------------------- 21 HIGH STREET LYMINGTON HANTS -------------------------------------------------- BANK OFFICIAL -------------------------------------------------- DEREK ELLIS /s/ Derek Ellis -------------------------------------------------- 16 GUIBAL ROAD, LEE, LONDON SE129CX -------------------------------------------------- RETIRED -------------------------------------------------- SUB-LEASE between LEYLAND DAF FINANCE PLC incorporated under the Companies Acts and having their Registered Office formerly at Kent House, Upper Mulgrave Road, Cheam, Sutton, Surrey, SM2 7AY and now at Four Mulgrave Chambers, 26/28 Mulgrave Road, Sutton, Surrey SM2 6LE, Registered Number 1286313 (who and whose successors as tenants under the Lease in their favour of the Premises aftermentioned are hereinafter referred to as "the Mid-Landlord") with the consent of CENTRAL REGIONAL COUNCIL, incorporated under the Local Government (Scotland) Act 1973, Viewforth, Stirling (who and whose successors are hereinafter referred to as "the Landlord") OF THE ONE PART and NOVELLUS SYSTEMS LIMITED, incorporated under the Companies Acts and having their registered office at 7 Marine Drive, New Milton, Hants BH25 7EE, Registered Number 2223831 (who and whose successors in the right of occupancy under this Sub-Lease and their permitted assignees and sub-under-tenants and in the case of an individual his executors and representatives are hereinafter referred to as "the Sub-Tenant") OF THE OTHER PART In this Sub-Lease unless there is something in the subject or context inconsistent therewith: 1. "Date of Expiry" means the date of expiry or sooner termination of the Sub- Lease (however the same may be determined). -3- SECOND The Mid-Landlord hereby sub-lets to the Sub-Tenant (but PERIOD OF THE excluding assignees and Sub-Under-Tenants legal or SUB-LEASE voluntary and creditors and managers for creditors in any form except where permitted under the Sub-Lease) the Premises subject to the same provisos, conditions and disclaimers in favour of the Mid-Landlord and where applicable the Landlord as are contained in the Lease and that for the period from the Second day of December Nineteen hundred and Ninety four ("the Date of Entry") until the First day of December Nineteen hundred and Ninety nine and the Sub-Tenant accepts the Premises in their present condition; Declaring, however, that either party shall be entitled to terminate this Sub-Lease on the third anniversary of the Date of Entry by giving written notice to that effect to the other party not less than six months before the said third anniversary. THIRD The Sub-Tenant hereby undertakes: SUB-TENANT'S MONETARY OBLIGATIONS RENT 1. To pay to the Mid-Landlord the yearly rent of FIFTEEN THOUSAND ONE HUNDRED AND TWENTY FIVE POUNDS (L15,125) STERLING or from each Date of Review the corresponding Revised Rent and if the Mid-Landlord has so opted or opts or if otherwise payable by law, Value Added Tax thereon at the standard rate (or if at any time in the future the standard rate shall no longer apply to rents, such rate as shall then be applicable) by equal quarterly payments in advance at the terms of Candlemas, (28th February) Whitsunday (28th May Lammas (28th August) and Martinmas (28th November) clear of all deductions whatsoever the first of such payments to be made on the Date of Entry for the period from the Date of Entry until the term day immediately succeeding the Date of Entry calculated on a daily basis and so forth quarterly, termly and proportionally thereafter during the currency of the Sub-Lease such rent or Revised Rent to be paid without any written demand and if the Mid-Landlord so requires by Banker's Order; Under declaration that the Sub-Tenant is hereby granted a twenty five per centum (25%) reduction in the rent payable in respect of the first six months of the Sub-Lease after the said Date of Entry. -4- REIMBURSEMENT 2. To reimburse to the Mid-Landlord on demand all payments made by way of reimbursement or otherwise by the Mid-Landlord to the Landlord under the Lease with the exception of:- (i) the rent and the Revised Rent provided for in the Lease and (ii) interest on and any expenses incurred by the Landlord in procuring payment of any sum of money payable or reimburseable to the Landlord under the Lease which shall have become due but remain unpaid by the Mid- Landlord. RATES & OTHER 3. To pay when due (or reimburse the Mid-Landlord on demand any CHARGES sum paid by the Mid-Landlord for) the rates, taxes, duties, charges, assessments, impositions and outgoings for the payment of which the Mid-Landlord is responsible in terms of the Lease other than taxes arising on the rent payable under the Sub-Lease or taxes arising on the disposal or deemed disposal by the Mid-Landlord of or other dealing by the Mid-Landlord with its interest in the Premises. 4. To reimburse the Mid-Landlord on demand all sums which the Mid-Landlord may from time to time pay for insuring and keeping insured the Premises for the loss of rent. INTEREST ON 5. To pay on demand to the Mid-Landlord, without prejudice to PAYMENTS any other right, remedy or power available to the Mid- IN ARREARS Landlord, interest at the Prescribed Rate on any rent or any other sum of money payable or reimburseable to the Mid- Landlord under the Sub-Lease which shall have become due but remain unpaid for fourteen days, such interest to run (as well after as before any judgement) from the date when the same shall become due until payment thereof. FOURTH The Sub-Tenant also undertakes: SUB-TENANTS FURTHER OBLIGATIONS FULFILMENT 1. To fulfill the obligations of a non monetary nature OF undertaken by the Mid-Landlord under the Lease. MID-LANDLORD'S OBLIGATIONS -5- ENTRY TO 2. In any case where the Landlord has reserved a right of entry PREMISES to the Premises under the Lease, to permit such right to be exercised by the Landlord and/or the Mid-Landlord subject to any condition in the Lease. EXPENSES 3. To reimburse the Mid-Landlord all expenses incurred by the Mid-Landlord: a) Incidental to the preparation and service of all notices and schedules relating to deficiencies in repair or requiring the Sub-Tenant to remedy the breach of any of its obligations under the Sub-Lease whether the same be served before or after the Date of Expiry but which relate to the period of this Sub-Lease. b) In the preparation and service of a schedule of dilapidations before or after the Date of Expiry which relates to the period of this Sub-Lease. c) In procuring the remedy of any breach of any obligation or the payment of arrears due by the Sub-Tenant under the Sub- Lease. APPLICATION 4. Upon making an application for any consent or approval which FOR CONSENT is required under the Sub-Lease to disclose to the OR APPROVAL Mid-Landlord such information as the Mid-Landlord may require and pay the Mid-Landlord's properly incurred expenses in connection with such application (including applications where consent or approval is refused or an application is withdrawn). ALIENATION 5. Not at any time to assign, sub-under-let or otherwise dispose of or for any purpose or in any way deal with the Sub-Tenant's interest in or part with or share possession or occupation of part only of the Premises. 6. Not at any time to sub-under-let the Premises as a whole. 7. Not at any time to assign or otherwise dispose of or for any purpose or in any way deal with the Sub-Tenant's interest in or part with or share possession or occupation of the whole of the Premises without the consent of the Landlord and the Mid-Landlord. -6- FIFTH The Mid-Landlord hereby undertakes provided that the Sub- MID-LANDLORDS' Tenant indemnifies the Mid-Landlord against any costs OBLIGATIONS incurred by or awarded against the Mid-Landlord in the course of its fulfilment of such undertaking: 1. On the request of the Sub-Tenant unless such request is demonstrably unreasonable having regard to the Mid- Landlord's interest in the Premises to adopt any procedure designed to enforce the fulfilment of the obligations undertaken by the Landlord under the Lease; 2. In relation to Rent Review:-- (i) Not without the approval of the Sub-Tenant (such approval not to be unreasonably withheld having regard to the Mid-Landlord's interest in the Premises) to agree with the Landlord on the Revised Rent nor on the Surveyor to be nominated for the purposes of determination of the Revised Rent and (ii) If so required by the Sub-Tenant to request the nomination by the Chairman for the time being of the Scottish Branch of the Royal Institution of Chartered Surveyors of a Surveyor for the purpose of such determination; and 3. To keep in force insurance against loss of rent for three years in an amount which would take into account potential increases of rent in accordance with the rent review provisions contained in the Lease and the Sub-Lease. SIXTH The same rights and remedies as are available to the MID-LANDLORD'S Landlord against the Tenant under the Lease shall be REMEDIES available to the Mid-Landlord against the Sub-Tenant under the Sub-Lease and shall be subject to the same conditions. SEVENTH If the Premises shall at any time during the period of the SUSPENSION OF Sub-Lease be so damaged or destroyed by reason of any of the RENT risks against which insurance is effected in terms of the Lease as to render the Premises unfit for occupation or use in whole or in part in accordance with the terms and provisions of the Sub-Lease then the Sub-Lease shall not come to an end and if the insurance policy or policies effected under the Lease shall not have been rendered void or payment of the -7- policy monies refused in whole or in part in consequence of any act or default of the Sub-Tenant its servants or agents the rent payable hereunder or (where part only of the Premises has been destroyed or rendered incapable of use) a fair proportion thereof shall be suspended until the Premises or such part thereof have been restored to substantially the same condition prevailing prior to such destruction or damage and are reasonably capable of use in accordance with the provisions hereof or until the Loss of Rent insurance shall be exhausted, if earlier: Provided that if at the expiry of one year from the date of such damage or destruction, the Premises or such part thereof are still not fit for occupation or use as aforesaid either party shall be entitled, upon giving three month's notice to the other party at any time after the expiry of the said one year period, to terminate the Sub-Lease and thereupon the rights and obligations of the parties shall cease and have no effect but without prejudice to any antecedent right or claim arising hereunder. EIGHTH IRRITANCY Subject to Sections 4 to 7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, if at any time during the Period of the Sub-Lease:-- (a) the rents payable under the Sub-Lease or the Revised Rent (or any of them or any part thereof) shall be in arrear and unpaid for fourteen days after becoming payable (whether legally demanded or not), or (b) there shall be any material breach, non-performance or non-observance by the Sub-Tenant of any of the obligations and conditions contained in the Sub-Lease; or (c) the Sub-Tenant passes a resolution to wind-up, enter into liquidation or insolvency whether compulsory or voluntary (save for the purpose of amalgamation or reconstruction of a solvent company) or has a Receiver or Administrator appointed of its undertaking or enters into an arrangement or composition for the benefit of its creditors, or suffers any diligence to be done or execution to be levied on its -8- goods or being a firm shall be sequestrated; the Mid- Landlord shall be entitled forthwith to terminate this Sub- Lease and treat this Sub-Lease and all transmissions thereof with all that has followed or can competently follow thereon as void and null and that without the necessity of any declarator, process of removal, or other procedure at law and the Premises shall thereupon revert to the Mid-Landlord. In such event it shall be lawful for the Mid-Landlord or any person or persons duly authorised by the Mid- Landlord on their behalf to enter upon the possession of the Premises or any part thereof in name of the whole and to eject the Sub-Tenant and occupiers and thereafter use, possess and enjoy the same free of all claims by the Sub- Tenant as if this Sub-Lease had never been granted without prejudice to any right of action or remedy of the Mid- Landlord in respect of the premature termination of the Sub- Lease or of any antecedent breach by the Sub-Tenant of any of the conditions contained in the Sub-Lease which irritancy is hereby declared to be pactional and not penal and shall not be purgeable at the bar; Provided that (ONE) in the case of a breach which is capable of being remedied the Mid- Landlord shall not be entitled to terminate this Sub-Lease as aforesaid unless it shall first have given notice of the breach to the Sub-Tenant prescribing a time which in the opinion of the Mid-Landlord is reasonable in the circumstances (such circumstances not including the financial position of the Sub-Tenant) within which such breach must be remedied and the Sub-Tenant shall have failed to remedy the breach within the time prescribed in the notice and declaring that where the breach is the failure to pay any sum of money, a reasonable time shall be a period of not less than fourteen days; (TWO) in the case of the Sub-Tenant going into liquidation (other than for reconstruction or amalgamation as aforesaid) or in the case of a Receiver or Administrator being appointed the Mid- Landlord shall not exercise such right of forfeiture on the ground of liquidation or insolvency or appointment of a Receiver or Administrator unless and -9- until they have allowed the Liquidator, Receiver or Administrator or interim or permanent trustee (as the case may be) a period of six months in which to dispose of the Sub-Tenant's interest in this Sub-Lease and shall only be entitled to terminate this Sub-Lease if the Liquidator, Receiver, Administrator or interim or permanent trustee as the case may be shall have failed to dispose of the Sub- Tenant's said interest at the end of said period provided always that the Liquidator, Receiver or Administrator or interim or permanent trustee shall accept and implement in writing within twenty one days of the date of liquidation or receivership or appointment of an interim or permanent trustee as the case may be personal responsibility for payment of the rent for the Premises and performance of all the Sub-Tenant's obligations under this Sub-Lease whether arising before or after the date of liquidation or receivership or appointment of an interim or permanent trustee as the case may be to the expiry of the said period or, if earlier, the date of entry under the disposal of the Sub-Tenant's interest in this Sub-Lease and it is hereby expressly declared that the Mid-Landlord shall deal with any request to consent to assign this Sub-Lease made by such Liquidator, Receiver, Administrator or interim or permanent trustee as the case may be in the same manner as if such requests had been made by the Sub-Tenant. NINTH VALUE ADDED TAX 1. Where there is a provision under the Sub-Lease for the Sub- Tenant to pay any fees, costs, charges, commission, remunerations, expenses or outlays the Sub-Tenant shall also be responsible for payment of any Value Added Tax thereon together with interest thereon from the date of the demand (or, in the case of rent), from the date when same falls due) until paid by the Sub-Tenant. 2. Without prejudice to the foregoing sub-paragraph, in the event that Value Added Tax shall be chargeable on the Mid- Landlord in respect of any supplies as defined in the Value Added Tax Act 1983 (or any statutory modification or -10- Sub-Tenant the Sub-Tenant shall in addition to any amounts otherwise payable, pay to the Mid-Landlord the amount of the Value Added Tax so chargeable. 3. Any rents and other sums payable under the Sub-Lease shall (notwithstanding any present or future statutory provision to the contrary) be exclusive of any Value Added Tax chargeable thereon (whether or not chargeable as the result of any change in the law and whether or not chargeable as the result of the exercise by the Mid-Landlord the Sub- Tenant or the Mid-Landlord and the Sub-Tenant jointly of any option in respect of the charging of Value Added Tax). TENTH NOTICES The provisions for notices contained in the Lease shall apply also under the Sub-Lease as if "the Mid-Landlord" had been substituted for "the Landlords" and "the Sub-Tenant" had been substituted for "the Tenants". ELEVENTH CONSENT TO REGISTRATION The parties consent to registration hereof for preservation and execution: IN WITNESS WHEREOF SUB-LEASE between LEYLAND DAF FINANCE PLC and NOVELLUS SYSTEMS LIMITED with consent of CENTRAL REGIONAL COUNCIL ------------------------------- SUBJECTS Upper Ground Floor (East Wing) The Forum Callendar Business park Falkirk -------------------------------------------------------------------- MITCHELLS ROBERTON SOLICITORS GEORGE HOUSE 36 NORTH HANOVER STREET GLASGOW G1 2AD AB/DBR FAS 5026 RE BOX 77 LEY001.LSE EX-10.50 15 EXHIBIT 10.50 COMMERCIAL LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into as of the date set forth below between Faison & Associates, Inc. d/b/a Southland Management Company, not individually, but solely as Management and Leasing Broker for PLAZA CENTRAL I (a --------------- registered fictitious name), hereinafter referred to as "Lessor" and NOVELLUS -------- SYSTEMS, INC., hereafter referred to as "Lessee": - -------------- W I T N E S S E T H: 1. LEASED PREMISES: In consideration of the rents, terms, provisions and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee the following described premises (referred to as "leased premises" and containing approximately 1,720 square feet) situated at PLAZA CENTRAL I, (sometimes --------------- referred to as "the building" or "the project"): 6220 S. Orange Blossom Trail Suite 186 Orlando, Florida 32809 (See Exhibit "A" (floor plan) attached hereto and made a part hereof.) 2. TERM: Subject to and upon the conditions set forth below, the term of this Lease shall commence on (FEBRUARY 1, 1996, the "commencement date"), and ------------------ shall terminate THIRTY-SIX (36) months thereafter. --------------- 3. RENT: (a) Lessee agrees to pay monthly as base rental during the term of this Lease the sum of ONE THOUSAND SEVEN HUNDRED TWENTY & 00/100 DOLLARS --------------------------------------------------- ($1,720.00), which amount shall be payable to Lessor at the address shown below - ----------- on the first day of the month. One monthly installment of rent shall be due and payable on the date of execution of this Lease by Lessee for the first month's rent and a like monthly installment shall be due and payable on or before the first day of each calendar month succeeding the "commencement date" during the demised term; provided, that if the "commencement date" should be a date other than the first day of a calendar month, the monthly rental set forth above shall be prorated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the demised term. Lessee shall pay, as additional rental, all other sums due under this Lease. (b) On the date of execution of this Lease by Lessee, there shall be due and payable by Lessee a security deposit in an amount equal to one monthly rental installment to be held for the performance by Lessee of Lessee's covenants and obligations under this lease, it being expressly understood that the deposit shall not be considered an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. Upon the occurrence of any event of default by Lessee or breach by Lessee of Lessee's covenants under this Lease, Lessor may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of rent and/or any damage, injury, expense or liability caused to Lessor by the event of default or breach of covenant, any remaining balance of the security deposit to be returned by Lessor to Lessee upon termination of this Lease. (c) If any increase in the fire insurance premiums paid by Lessor for the building in which Lessee occupies space is caused by Lessee's use and occupancy of the leased premises, or if Lessee vacates the leased premises and causes an increase in such premiums, then Lessee shall pay as additional rental the amount of such increase to Lessor. (d) Other remedies for nonpayment of rent notwithstanding, if the monthly rental payment is not received by Lessor on or before the tenth day of the month for which rent is due, or if any other payment due Lessor by Lessee is not received by Lessor on or before the tenth day of the month next following the month in which Lessee was invoiced, a service charge of five per cent (5%) of such past due amount shall become due and payable in addition to such amounts owed under this Lease. -1- See Addendum 4. SIGNS: (a) If the leased premises are within a multi-story building, Lessor will furnish and install a suitable building directory and establish suite numbers to facilitate locating and identifying Lessee's premises. In order to effect uniformity, to control the graphics, and to maintain dignified aesthetics, Lessor will also furnish and install at the entrance door to Lessee's premises a uniform suite number plate and a name plate. Signs, name plates or graphics which are wholly within the leased premises and not visible from the exterior of the building or from public spaces within the building will be permitted. (b) If the leased premises are within a single-story building which has integral exterior sign pylons or sign plaques, Lessee shall have the right to install letters upon a sign plaque provided by Lessor or upon the sign pylon adjacent to the leased premises, if space is available. The letters, numerals, emblems, trademarks, insignia and other designs shall be of non-illuminated plastic, porcelain enamel or aluminum and shall be individual cut-out letters using the surface of the pylon or sign plaque as background and shall be subject to approval of Lessor for the purpose of maintaining architectural continuity and quality of design. If Lessee has not installed a sign in accordance with the provisions of this paragraph within ninety (90) days following the commencement date of this Lease, Lessee's right to install a sign shall terminate. (c) If the leased premises are within a single story building with or without integral exterior sign pylons, Lessee shall have the right to place lettering upon the entrance doors, plate glass windows or sign plaques of the leased premises; provided, however, that the lettering shall not exceed six inches in height and shall be subject to the approval of Lessor. If the leased premises open off of a public corridor or lobby, Lessor will furnish and install a uniform number plate and name plate for Lessee for installation at the corridor door, and Lessor will furnish and install a suitable building directory to facilitate locating and identifying Lessee's premises. (d) Lessee agrees that no other sign (mobile or stationary) of any description shall be erected, placed or painted in or about the leased premises. Lessee shall, at Lessee's expense, remove all signs at the termination of this Lease, and the installation and removal shall be in such manner as to avoid injury, defacement or overloading of the building or other improvements. 5. USAGE AND INSURANCE: Lessee warrants and represents to Lessor that the leased premises shall be used and occupied only for the purpose of general office use. Lessee shall occupy the leased premises, conduct its business and control its agents, employees, invitees and visitors in such a manner as is lawful, reputable and will not create any nuisance or otherwise interfere with, annoy or disturb any other tenant in its normal business operations or Lessor in its management of the building. Lessee shall not commit, or suffer to be committed, any waste on the leased premises, nor shall Lessee permit the leased premises to be used in any way which would, in the opinion of the Lessor, be extra hazardous on account of fire or otherwise which would in any way increase or render void the fire insurance on the leased premises or contents of the building. 6. JANITORIAL SERVICE: Lessor shall furnish janitorial services during the term of this Lease. The janitorial services shall be provided five times per week during the term of this Lease. 7. BUILDING SERVICES: (a) Lessor shall furnish gas, water and electricity for Lessee during the term of this Lease. Lessee shall pay all telephone charges. Lessor shall furnish Lessee hot and cold water at those points of supply provided for general use of other tenants in the building, central heating and air conditioning in season (at times Lessor normally furnishes these services to other tenants in the building, and at temperatures and in amounts as are considered by Lessor to be standard or in compliance with any governmental regulations, such service on Saturday afternoons, Sundays and holidays to be furnished only upon the request of Lessee, who shall bear the entire cost). Lessor shall also furnish routine maintenance, painting and electrical lighting service for all public areas and special service areas of the building in the manner and to the extent deemed by Lessor to be standard. Lessor shall not bear the utility costs (including meter installation and air conditioning costs) occasioned by electrodata processing machines, computers and similar machines of high electrical consumption. Failure by Lessor to any extent to furnish these defined services, or any cessation thereof, resulting from causes beyond the control of Lessor shall neither render Lessor liable in any respect for damages to either person or property, be construed as an eviction of Lessee, work an abatement of rent nor relieve Lessee from fulfillment of any covenant in this Lease. Should any of the equipment or machinery break down, or for any cause cease to function properly, Lessor shall use reasonable diligence to repair the same promptly, but Lessee shall have no claim for rebate on account of any interruption in service occasioned from the repairs. (b) Lessor shall furnish and install window coverings on all exterior windows to maintain a uniform exterior appearance. Lessee shall not remove or replace these window coverings or install any other window covering which would affect the exterior appearance of the building. Lessee may install lined or unlined over draperies on the interior sides of the Lessor furnished draperies, for interior appearance, or to reduce light transmission, provided such over draperies do not affect the exterior appearance of the building. -2- 8. RELOCATION: In the event Lessor determines to utilize the leased premises for other purposes during the term of this Lease, Lessee agrees to relocate to other space in the building and/or project designated by Lessor, provided such other space is of equal or larger size than the leased premises and has at least the same number of windows. Lessor shall pay all out- of-pocket expenses of any such relocation, including the expenses of moving and reconstruction of all Lessee furnished and Lessor furnished improvements. In the event of such relocation, this Lease shall continue in full force and effect without any change in the terms and other conditions, but with the new location substituted for the old location set forth in paragraph 1 of this Lease. 9. REPAIRS AND MAINTENANCE: (a) Unless otherwise expressly provided, Lessor shall not be required to make any improvements, replacements or repairs of any kind or character to the leased premises during the term of this Lease, except repairs to walls, doors, corridors, windows and other structures and equipment within and serving the leased premises, and additional maintenance as may be necessary because of damage by persons other than Lessee, its agents, employees, invitees, licensees or visitors, and as may be necessary solely because of the negligence of Lessor, which repairs shall be made by Lessor at its expense beginning not more than fifteen (15) days after written notice by Lessee. Lessor's cost of maintaining the items set forth in this subparagraph are subject to the additional rental provisions in paragraph 3. Lessor shall not be liable to Lessee, except as expressly provided in this Lease, for any damage or inconvenience, and Lessee shall not be entitled to any abatement or reduction of rent by reason of any repairs, alterations or additions made by Lessor under this Lease. (b) Lessee shall, at its own cost and expense, repair or replace any damage or injury to all or any part of the leased premises caused by Lessee or Lessee's agents, employees, invitees, licensees or visitors; provided, however, if Lessee fails to make the repairs or replacements promptly, Lessor may, at its option, make the repairs or replacements and the costs of such repairs or replacements shall be charged to Lessee as additional rental and shall become payable by Lessee with the payment of the rental next due hereunder. (c) Lessee shall not allow any damage to be committed on any portion of the leased premises, and at the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises to Lessor in as good condition as existed at the commencement date or completion date of this Lease, ordinary wear and tear excepted. The cost and expense of any repairs necessary to restore the condition of the leased premises shall be borne by Lessee, and if Lessor undertakes to restore the leased premises it shall have a right of reimbursement against Lessee. (d) All requests for repairs or maintenance that are the responsibility of Lessor pursuant to any provision of this Lease must be made in writing to Lessor at the address set forth below. 10. COMPLIANCE WITH LAWS, RULES AND REGULATIONS: Lessee, at Lessee's expense, shall comply with all laws, ordinances, orders, rules and regulations of state, federal, municipal or other agencies or bodies having jurisdiction relating to the use, condition and occupancy of the leased premises. Lessee will comply with the rules of the building adopted by Lessor which are set forth on a schedule attached to this Lease. Lessor shall have the right at all times to change the rules and regulations of the building or to amend them in any reasonable manner as may be deemed advisable for the safety, care and cleanliness, and for the preservation of good order, of the leased premises. All changes and amendments in the rules and regulations of the building will be sent by Lessor to Lessee in writing and shall thereafter be carried out and observed by Lessee. 11. LESSOR IMPROVEMENTS: If construction to the leased premises is to be performed by Lessor prior to Lessee's occupancy, Lessor will, at its expense, commence and/or complete the construction of the improvements constituting the leased premises, including partitions, in accordance with the floor plan and its specifications agreed to by the parties and made a part of this Lease by reference. The plans and specifications shall be approved and signed by the parties prior to the commencement of construction. Any changes or modifications to the approved plans and specifications shall be made and accepted by written change order signed by Lessor and Lessee and shall constitute an amendment to this Lease. Upon completion of the building and other improvements in accordance with the plans and specifications, Lessee agrees to execute and deliver to Lessor a letter accepting delivery of the leased premises. 12. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make or allow to be made any alterations or physical additions in or to the leased premises without first obtaining the written consent of Lessor. Any alterations, physical additions or improvements to the leased premises made by Lessee shall at once become the property of Lessor and shall be surrendered to Lessor upon the termination of this Lease. Lessor, at its option, may require Lessee to remove any physical additions and/or repair any alterations in order to restore the leased premises to the condition existing at the time Lessee took possession, all costs of removal and/or alterations to be borne by Lessee. This clause shall not apply to moveable equipment or furniture owned by Lessee which may be removed by Lessee at the end of the term of this Lease if Lessee is not then in default and if such equipment and furniture is not then subject to any other rights, liens and interests of Lessor. 13. CONDEMNATION: (a) If, during the term (or any extension or renewal) of this Lease, all or a substantial part of the leased premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the leased premises for the purpose for which they are then being used, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority. Lessee shall have no claim to the condemnation award. (b) In the event a portion of the leased premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain or by purchase in lieu thereof, and this Lease is not terminated as provided in subparagraph (a) above, Lessor may, at Lessor's sole risk and expense, restore and reconstruct the building and other improvements on the leased premises to the extent necessary to make it reasonably tenable. The rent payable under this Lease during the unexpired portion of the term shall be adjusted to such an extent as may be fair and reasonable under the circumstances. Lessee shall have no claim to the condemnation award. 14. FIRE AND CASUALTY: (a) If the leased premises should be totally destroyed by fire or other casualty, or if the leased premises should be so damaged so that rebuilding cannot reasonably be completed within ninety (90) working days after the date of written notification by Lessee to Lessor of the destruction, this Lease shall terminate and the rent shall be abated for the unexpired portion of the Lease, effective as of the date of the written notification. (b) If the leased premises should be partially damaged by fire or other casualty, and rebuilding or repairs can reasonably be completed within ninety (90) working days from the date of written notification by Lessee to Lessor of the destruction, this Lease shall not terminate, but Lessor may at its sole risk and expense proceed with reasonable diligence to rebuild or repair the building or other improvements to substantially the same condition in which they existed prior to the damage. If the leased premises are to be rebuilt or repaired and are untenantable in whole or in part following the damage, and the damage or destruction was not caused or contributed to by act or negligence of Lessee, its agents, employees, invitees or those for whom Lessee is responsible, the rent payable under this Lease during the period for which the leased premises are untenantable shall be adjusted to such an extent as may be fair and reasonable under the circumstances. In the event that Lessor fails to complete the necessary repairs or rebuilding within ninety (90) working days from the date of written notification by Lessee to Lessor of the destruction, Lessee may at its option terminate this Lease by delivering written notice of termination to Lessor, whereupon all rights and obligations under this Lease shall cease to exist. 15. PROPERTY INSURANCE: Lessor shall at all times during the term of this Lease maintain a policy or policies of insurance with the premiums paid in advance, issued by and binding upon some solvent insurance company, insuring the building against all risk of direct physical loss in an amount equal to ninety percent (90%) of the full replacement cost of the building structure and its improvements as of the date of the loss; provided, that Lessor shall not be obligated in any way or manner to insure any personal property (including, but not limited to, any furniture, machinery, goods or supplies) of Lessee or which Lessee may have upon or within the leased premises or any fixtures installed by or paid for by Lessee upon or within the leased premises or any additional improvements which Lessee may construct on the leased premises. Lessee shall provide to Lessor a Certificate of Insurance as proof of coverage. -3- 16. WAIVER OF SUBROGATION: Anything in this Lease to the contrary notwithstanding, Lessor and Lessee hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the leased premises, improvements to the building of which the leased premises are a part, or personal property (building contents) within the building, by reason of fire or the elements regardless of cause or origin, including negligence of Lessor or Lessee and their agents, officers and employees. Because this paragraph will preclude the assignment of any claim mentioned in it by way of subrogation or otherwise to an insurance company or any other person, each party to this Lease agrees immediately to give to each insurance company which has issued to it policies of insurance covering all risk of direct physical loss, written notice of the terms of the mutual waivers contained in this paragraph, and to have the insurance policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this paragraph. 17. HOLD HARMLESS: Lessor shall not be liable to Lessee's employees, agents, invitees, licensees or visitors, or to any other person, for any injury to person or damage to property on or about the leased premises caused by the negligence or misconduct of Lessee, its agents, servants or employees, or of any other person entering upon the leased premises under express or implied invitation by Lessee, or caused by the building and improvements located on the leased premises becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the leased premises. Lessee agrees to indemnify and hold harmless Lessor of and from any loss, attorney's fees, expenses or claims arising out of any such damage or injury. 18. QUIET ENJOYMENT: Lessor warrants that it has full right to execute and to perform this Lease and to grant the estate demised and that Lessee, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the leased premises during the full term of this Lease as well as any extension or renewal thereof. Lessor shall not be responsible for the acts or omissions of any other lessee or third party that may interfere with Lessee's use and enjoyment of the leased premises. 19. LESSOR'S RIGHT OF ENTRY: Lessor shall have the right, at all reasonable hours, to enter the leased premises for the following reasons: inspection; cleaning or making repairs; making alterations or additions as Lessor may deem necessary or desirable; determining Lessee's use of the leased premises, or determining if an act of default under this Lease has occurred. 20. ASSIGNMENT OR SUBLEASE: Lessor shall have the right to transfer and assign, in whole or in part, its rights and obligations in the building and property that are the subject of this Lease. Lessee shall not assign this Lease or sublet all or any part of the leased premises without the prior written consent of Lessor. Lessor shall have the option, upon receipt from Lessee of written request for Lessor's consent to subletting or assignment, to cancel this Lease as of the date the requested subletting or assignment is to be effective. The option shall be exercised, if at all, within fifteen (15) days following Lessor's receipt of such written request by delivery to Lessee of written notice of Lessor's intention to exercise the option. In the event of any assignment or subletting, Lessee shall nevertheless at all times remain fully responsible and liable for the payment of the rent and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an "event of default" as defined below, if all or any part of the leased premises are then assigned or sublet, Lessor, in addition to any other remedies provided by this Lease or provided by law, may, at its option, collect directly from the assignee or subtenant all rents becoming due to Lessee by reason of the assignment or sublease, and Lessor shall have a security interest in all properties on the leased premises to secure payment of such sums. Any collection directly by Lessor from the assignee or subtenant shall not be construed to constitute a novation or a release of Lessee from the further performance of its obligations under this Lease. 21. LANDLORD'S LIEN: As security for payment of rent, damages and all other payments required to be made by this Lease, Lessee hereby grants to Lessor a lien upon all property of Lessee now or subsequently located upon the leased premises. If Lessee abandons or vacates any substantial portion of the leased premises or is in default in the payment of any rentals, damages or other payments required to be made by this Lease or is in default of any other provision of this Lease, Lessor may enter upon the leased premises, by picking or changing locks if necessary, and take possession of all or any part of the personal property, and may sell all or any part of the personal property at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash, and, on behalf of Lessee, sell and convey all or part of the personal property to the highest bidder, delivering to the highest bidder all of Lessee's title and interest in the personal property sold to him. The proceeds of the sale of the personal property shall be applied by Lessor toward the reasonable costs and expenses of the sale, including attorney's fees, and then toward the payment of all sums then due by Lessee to Lessor under the terms of this Lease; any excess remaining shall be paid to Lessee or any other person entitled thereto by law. 22. UNIFORM COMMERCIAL CODE: This Lease is intended as and constitutes a security agreement within the meaning of the Uniform Commercial Code of the state in which the leased premises are situated and, Lessor, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interests in and to Lessee's property now or hereafter located upon the leased premises which are granted a secured party, as that term is defined, under the Uniform Commercial Code to secure the payment to Lessor of the various amounts provided in this Lease. Lessee will on request execute and deliver to Lessor a financing statement for the purpose of perfecting Lessor's security interest under this Lease or Lessor may file this Lease or a copy thereof as a financing statement. 23. DEFAULT BY LESSEE: The following shall be deemed to be events of default by Lessee under this Lease: (a) Lessee shall fail to pay when due any installment of rent or any other payment required persuant to this Lease; and such failure is not cured by Lessee within 5 days from receipt of written notice; (b) Lessee shall abandon any substantial portion of the leased premises; (c) Lessee shall fail to comply with any term, provision or covenant of this Lease, other than the payment of rent, and the failure is not cured within thirty (30) days after written notice to Lessee; (d) Lessee shall file a petition or be adjudged bankrupt or insolvent under the National Bankruptcy Act, as amended, or any similar law or statute of the United States or any state; or a receiver or trustee shall be appointed for all or substantially all of the assets of Lessee; or Lessee shall make a transfer in fraud of creditors or shall make an assignment for the benefit of creditors; or (e) Lessee shall do or permit to be done any act which results in a lien being filed against the leased premises or the building and/or project of which the leased premises are a part. 24. REMEDIES FOR LESSEE'S DEFAULT: Upon the occurrence of any event of default set forth in this Lease, Lessor shall have the option to pursue any one or more of the following remedies without any notice or demand: (a) Terminate this Lease, in which event Lessee shall immediately surrender the leased premises to Lessor, and if Lessee fails to surrender the leased premises, Lessor may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel, or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for prosecution of any claim for damages. Lessee agrees to pay on demand the amount of all loss and damage which Lessor may suffer by reason of the termination of the Lease under this subparagraph, whether through inability to relet the leased premises on satisfactory terms or otherwise. (b) Enter upon and take possession of the leased premises, by picking or changing locks if necessary, and lock out, expel or remove Lessee and any other person who may be occupying all or any part of the leased premises without being liable for any claim for damages and relet the leased premises on behalf of Lessee and receive directly the rent by reason of the reletting. Lessee agrees to pay Lessor on demand any deficiency that may arise by reason of any reletting of the leased premises; further, Lessee agrees to reimburse Lessor for any expenditures made by it for remodeling or repairing in order to relet the leased premises. (c) Enter upon the leased premises, by picking or changing locks if necessary, without being liable for prosecution of any claim for damages, and do whatever Lessee is obligated to do under the terms of this Lease. Lessee agrees to reimburse Lessor on -4- demand for any expenses which Lessor may incur in effecting compliance with Lessee's obligations under this Lease; further, Lessee agrees that Lessor shall not be liable for any damages resulting to Lessee from effecting compliance with Lessee's obligations under this subparagraph caused by the negligence of Lessor or otherwise. 25. WAIVER OF DEFAULT OR REMEDY: Failure of Lessor to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of the default, but Lessor shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease. Pursuit of any one or more of the remedies set forth in paragraph 24 above shall not preclude pursuit of any one or more of the other remedies provided elsewhere in this Lease or provided by law, nor shall pursuit of any remedy provided constitute forfeiture or waiver of any rent or damages accruing to Lessor by reason of the violation of any of the terms, provisions or covenants of this Lease. Failure by Lessor to enforce one or more of the remedies provided upon an event of default shall not be deemed or construed to constitute a waiver of the default or of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. 26. ACTS OF GOD: Lessor shall not be required to perform any covenant or obligation in this Lease, or be liable in damages to Lessee, so long as the performance or non-performance of the covenant or obligation is delayed, caused by or prevented by an act of God or force majeure. 27. ATTORNEY'S FEES: In the event Lessee defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Lessor places in the hands of an attorney the enforcement of all or any part of this Lease, the collection of any rent due or to become due or recovery of the possession of the leased premises, Lessee agrees to pay Lessor reasonable attorney's fees for the services of the attorney, whether suit is actually filed or not. In no event shall the attorney's fees be less than fifteen percent of the outstanding balance owed by Lessee to Lessor. 28. HOLDING OVER: In the event of holding over by Lessee after the expiration or termination of this Lease, the hold over shall be as a tenant at will and all of the terms and provisions of this Lease shall be applicable during that period, except that Lessee shall pay Lessor as rental for the period of such hold over an amount equal to one and one-half the rent which would have been payable by Lessee had the hold over period been a part of the original term of this Lease. Lessee agrees to vacate and deliver the leased premises to Lessor upon Lessee's receipt of notice from Lessor to vacate. The rental payment during the hold over period shall be payable to Lessor on demand. No holding over by Lessee, whether with or without consent of Lessor, shall operate to extend this Lease except as otherwise expressly provided. 29. RIGHTS OF FIRST MORTGAGEE: Lessee accepts this Lease subject and subordinate to any recorded first mortgage or deed of trust lien presently existing or hereafter created upon the leased premises. Lessor is hereby irrevocably vested with full power and authority to subordinate Lessee's interest under this Lease to any first mortgage or deed of trust lien hereafter placed on the leased premises, and Lessee agrees upon demand to execute additional instruments subordinating this Lease as Lessor may require. If the interests of Lessor under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any first mortgage or deed of trust on the leased premises, Lessee shall be bound to the transferee (sometimes called the "Purchaser"), at the option of the Purchaser, under the terms, covenants and conditions of this Lease for the balance of the term remaining, and any extentions or renewals, with the same force and effect as if the Purchaser were Lessor under this Lease, and, if requested by the Purchaser, Lessee agrees to attorn to the Purchaser, including the first mortgagee under any such mortgage if it be the Purchaser, as its lessor. 30. ESTOPPEL CERTIFICATES: Lessee agrees to furnish promptly, from time to time, upon request of Lessor or Lessor's mortgage, a statement certifying, if applicable, that Lessee is in possession of the leased premises; the leased premises are acceptable; the Lease is in full force and effect; the Lease is unmodified; Lessee claims no present charge, lien, or claim of offset against rent; the rent is paid for the current month, but is not prepaid for more than one month and will not be prepaid for more than one month in advance; there is no existing default by reason of some act or omission by Lessor; and such other matters as may be reasonably required by Lessor or Lessor's mortgagee. 31. SUCCESSORS: This Lease shall be binding upon and inure to the benefit of Lessor and Lessee and their respective heirs, personal representatives, successors and assigns. It is hereby covenanted and agreed that should Lessor's interest in the leased premises cease to exist for any reason during the term of this Lease, then notwithstanding the happening of such event this Lease nevertheless shall remain unimpaired and in full force and effect and Lessee hereunder agrees to attorn to the then owner of the leased premises. 32. RENT TAX: If applicable in the jurisdiction where the leased premises are situated, Lessee shall pay and be liable for all rental, sales and use taxes or other similar taxes, if any, levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid to Lessor by Lessee under the terms of this Lease. Any such payment shall be paid concurrently with the payment of the rent upon which the tax is based as set forth above. 33. DEFINITIONS: The following definitions apply to the terms set forth below as used in this Lease: (a) "Abandon" means the vacating of all or a substantial portion of the leased premises by Lessee, whether or not Lessee is in default of the rental payments due under this Lease. (b) An "act of God" or "force majeure" is defined for purposes of this Lease as strikes, lockouts, sit-downs, material or labor restrictions by any governmental authority, unusual transportation delays, riots, floods, washouts, explosions, earthquakes, fire, storms, weather (including wet grounds or inclement weather which prevents construction), acts of the public enemy, wars, insurrections and any other cause not reasonably within the control of Lessor and which by the exercise of due diligence Lessor is unable, wholly or in part, to prevent or overcome. (c) The "commencement date" shall be the date set forth in paragraph 2. The "commencement date" shall constitute the commencement of this Lease for all purposes, whether or not Lessee has actually taken possession. (e) "Real property tax" means all school, city, state and county taxes and assessments including special district taxes or assessments. (f) "Square feet or "square foot" as used in this Lease includes the area contained within the space occupied by Lessee together with a common area percentage factor of Lessee's space proportionate to the total building area. 34. MISCELLANEOUS: The captions appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such paragraph. If any provision of this Lease shall ever be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Lease, and such other provisions shall continue in full force and effect. -5- 35. NOTICE: (a) All rent and other payments required to be made by Lessee shall be payable to Lessor at the address set forth below. (b) All payments required to be made by Lessor to Lessee shall be payable to Lessee at the address set forth below, or at any other address within the United States as Lessee may specify from time to time by written notice. (c) Any notice or document required or permitted to be delivered by this Lease shall be deemed to be delivered (whether or not actually received) when deposited in the United States Mail, postage prepaid, certified mail, return receipt requested, addressed to the parties at the respective addresses set out below: LESSOR: LESSEE: SOUTHLAND MANAGEMENT COMPANY NOVELLUS SYSTEMS, INC. 6220 S. Orange Blossom Trail 3970 N. First Street Suite 160 San Jose, CA 95134 Orlando, Florida 32809 37. ENTIRE AGREEMENT AND LIMITATIONS OF WARRANTIES: IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE. LESSOR AND LESSEE EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OR MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. IT IS LIKEWISE AGREED THAT THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LESSOR AND LESSEE. 38. OTHER PROVISIONS: RADON GAS: "Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit." 39. ADDENDUM: There is an Addendum attached hereto and made a part hereof. Signed at Orlando, FL , this 22nd day of December , 1995 -------------- ------ ---------------- -- Faison & Associates, Inc. d/b/a LESSOR: LESSEE: Southland Management Company, NOVELLUS SYSTEMS, INC. not individually, but solely as Management and Leasing Broker for PLAZA CENTRAL I By /s/ By /s/ ------------------------------ ------------------------------ Title Vice President and Title Treasurer --------------------------- --------------------------- Authorized Agent WITNESS: WITNESS: /s/ Ed Bennett /s/ Ciska Perry - --------------------------------- ------------------------------ /s/ Lisa Bailey /s/ Gina Corrales - --------------------------------- ------------------------------ -6- ADDENDUM 1) INCREASES IN BASE RENT: The monthly rent for each twelve-month period subsequent to the first complete twelve-month period occurring during the term of this Lease shall increase by seven percent (7%) as follows: Commencing February 1, 1997 the monthly rent shall be increased to $1,840.40; commencing February 1, 1998 the monthly rent shall be increased to $1,969.40. Lessee agrees to pay the adjusted monthly rent, together with any applicable taxes, on the first day of each and every month as outlined in Paragraph 3(a) of the Lease. [Map] RULES AND REGULATIONS 1. Lessor agrees to furnish Lessee two keys without charge. Additional keys will be furnished at a nominal charge. 2. Lessee will refer all contractors, contractor's representatives and installation technicians rendering any service on or to the leased premises for Lessee, to Lessor for Lessor's approval and supervision before performance of any contractual service. This provision shall apply to all work performed on or about the leased premises or project, including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings and equipment or any other physical portion of the leased premises or project. 3. Lessee shall not at any time occupy any part of the leased premises or project as sleeping or lodging quarters. 4. Lessee shall not place, install or operate on the leased premises or in any part of the building, any engine, stove or machinery, or conduct mechanical operations or cook thereon or therein, or place or use in or about the leased premises or project any explosives, gasoline, kerosene, oil, acids, caustics, or any flammable, explosive or hazardous material without written consent of Lessor. 5. Lessor will not be responsible for lost or stolen personal property, equipment, money or jewelry from the leased premises or the project regardless of whether such loss occurs whether the area is locked against entry or not. 6. No dogs, cats, fowl, or other animals shall be brought into or kept in or about the leased premises or project. 7. Employees of Lessor shall not receive or carry messages for or to any Lessee or other person, nor contract with or render free or paid services to any Lessee or Lessee's agents, employees or invitees. 8. None of the parking, plaza, recreation or lawn areas, entries, passages, doors, elevators, hallways or stairways shall be blocked or obstructed, or any rubbish, litter, trash, or material of any nature placed, emptied or thrown into these areas or such area be used by Lessee's agents, employees or invitees at any time for purposes inconsistent with their designation by Lessor. 9. The water closets and other water fixtures shall not be used for any purpose other than those for which they were constructed, and any damage resulting to them from misuse, or by the defacing or injury of any part of the building shall be borne by the person who shall occasion it. No person shall waste water by interfering with the faucets or otherwise. 10. No person shall disturb occupants of the building by the use of any radios, record players, tape recorders, musical instruments, the making of unseemly noises, or any unreasonable use. 11. Nothing shall be thrown out of the windows of the building or down the stairways or other passages. 12. Lessee and its employees, agents and invitees shall park their vehicles only in those parking areas designated by Lessor. Lessee shall furnish Lessor with state automobile license numbers of Lessee's vehicles and its employees' vehicles within five days after taking possession of the leased premises and shall notify Lessor of any changes within five days after such change occurs. Lessee shall not leave any vehicle in a state of disrepair (including without limitation, flat tires, out of date inspection stickers or license plates) on the leased premises or project. If Lessee or its employees, agents or invitees park their vehicles in areas other than the designated parking areas or leave any vehicle in a state of disrepair, Lessor, after giving written notice to Lessee of such violation, shall have the right to remove such vehicles at Lessee's expense. TOWER SECTION (If Applicable) 13. Movement in or out of the building of furniture or office supplies and equipment, or dispatch or receipt by Lessee of any merchandise or materials, which require use of elevators or stairways, or movement through the building entrances or lobby, shall be restricted to hours designated by Lessor. All such movement shall be under supervision of Lessor and carried out in the manner agreed between Lessee and Lessor by prearrangement before performance. Such prearrangement will include determination by Lessor of time, method, and routing of movement and limitations imposed by safety or other concerns which may prohibit any article, equipment or any other item from being brought into the building. Lessee assumes, and shall indemnify Lessor against, all risks and claims of damage to persons and properties arising in connection with any said movement. 14. Lessor will provide and maintain an alphabetical directory board in the ground floor lobby of the building and allot one name strip for Lessee. 15. Lessor shall not be liable for any damages from the stoppage of elevators for necessary or desirable repairs or improvements or delays of any sort or duration in connection with the elevator service. It is Lessor's desire to maintain in the building or project the highest standard of dignity and good taste consistent with comfort and convenience for Lessees. Any action or condition not meeting this high standard should be reported directly to Lessor. Your cooperation will be mutually beneficial and sincerely appreciated. Lessor reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary, for the safety, care and cleanliness of the leased premises, and for the preservation of good order therein. EX-10.51 16 EXHIBIT 10.51 OFFICE LEASE FOR CORNELL OAKS CORPORATE CENTER This Lease is dated as of March 20, 1995, by and between HARTFORD UNDERWRITERS INSURANCE COMPANY, a Connecticut corporation, having an office at Hartford, Connecticut (Landlord), and NOVELLUS SYSTEMS INC., a California corporation, having an office at San Jose, California (Tenant). I. DEMISE OF PREMISES Landlord hereby leases to Tenant and Tenant leases from Landlord the Premises located in the Building, together with the nonexclusive right to use, in common with Landlord and others, the following portions of the Building and Land: the entrance foyer and lobby; the corridors and lavatories on the floor on which the Premises are situated; the stairways, elevators, shipping and receiving areas; and exterior sidewalks and driveways. II. SUMMARY OF TERMS As used in this Lease, the following terms shall have the following meanings: A. PREMISES: That part of the Building outlined on the attached Plan showing the Premises, called Suite B-340, on the first floor of the Building, including all tenant improvements made by Landlord pursuant to the attached Work Letter. B. BUILDING: The building on the Land, known as the Parkside Building B, having an address of 15350 North West Greenbrier Parkway, Beaverton, Oregon 97006, as shown on the attached Land and Building Plan. C. LAND: The real property shown on the Land and Building Plan. D. OFFICE PARK: If indicated on the Land and Building Plan, the office park, including land and buildings, of which the Land and Building are a part. E. BUILDING MANAGER: Norris, Beggs & Simpson, 15455 North West Greenbrier Parkway, Suite 200, Beaverton, Oregon 97006, or such other person as Landlord may designate. -2- F. COMMENCEMENT DATE: The later of May 1, 1995 (the Expected Commencement Date), or that date on which the Premises are substantially completed pursuant to Section 1 of the Lease. G. TERMINATION DATE: The last day of the 3rd Lease Year, unless extended as provided in this Lease. H. LEASE YEAR: A 12 month period, the first of which shall commence on the Commencement Date if it is the first day of a month, otherwise, on the first day of the month next following the Commencement Date, and each subsequent Lease Year shall begin on successive anniversaries of the commencement of the first Lease Year. I. TERM: A period commencing on the Commencement Date and expiring at midnight on the Termination Date, unless sooner terminated as provided in this Lease. J.&K. BASE RENT & MONTHLY INSTALLMENTS OF BASE RENT: Base Rent Monthly Installments Lease Year per Annum of Base Rent ------------- --------------- -------------------------- 1 $29,424.00 $2,452.00 2 30,804.00 2,567.00 3 32,184.00 2,682.00 L. TENANT'S PROPORTIONATE SHARE: 2.44 percent. M. Intentionally omitted. N. Intentionally omitted. O. SECURITY DEPOSIT: $2,681.70. P. LANDLORD'S MAILING ADDRESS: Hartford Plaza, Hartford, Connecticut 06115, Attention: Real Estate Department. Q. TENANT'S MAILING ADDRESS: Prior to Commencement Date: 18200 South East 24th Way, Carnas, Washington 98607. As of Commencement Date: 15350 North West Greenbrier Parkway, Suite B-350, Beaverton, Oregon 97006. R. NORMAL BUSINESS HOURS: The hours from 8 a.m. to 6 p.m. Monday through Friday and 8 a.m. to 12 p.m. on Saturday, except recognized holidays. S. STATE: The State of Oregon. -3- T. PARKING SPACES: Tenant shall be entitled to the nonexclusive use in common with Landlord and others of a maximum of 15 spaces in the parking area which is shown on the Land and Building Plan. U. PARKING FEE: Initially $-0- per Parking Space per month. During the initial Term the Parking Fee shall not be changed except for such amounts as may be charged by a governmental authority as provided in Section 28(b). V. BROKER: Norris, Beggs & Simpson. W. PERMITTED USE (in addition to light industrial and general office purposes): None. X. TENANT'S REPRESENTATIVES: Tenant's employees, agents, contractors, licensees and invitees. III. ATTACHMENTS The attachments listed below are incorporated in this Lease and are to be construed as part hereof: 1. General Terms, Covenants and Conditions 2. Plan showing the Premises 3. Land and Building Plan 4. Rules and Regulations 5. Expense Escalation 6. Work Letter 7. Plans and Specifications of Leasehold Improvements and Tenant Layout IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease or caused it to be executed. LANDLORD: TENANT: HARTFORD UNDERWRITERS NOVELLUS SYSTEMS INC. INSURANCE COMPANY By --------------------------------- By ---------------------------------- --------------------------------- ---------------------------------- [Print Name] [Print Name] Its -------------------------------- Its --------------------------------- [Title] [Title] GENERAL TERMS, COVENANTS AND CONDITIONS 1. COMMENCEMENT OF TERM. (a) The Premises shall be deemed substantially completed upon the issuance of a certificate of substantial completion by Landlord's architect or a certificate of occupancy by the local building authority, notwithstanding that minor or insubstantial details of construction, mechanical adjustment or decoration remain to be performed. If the substantial completion of the Premises by Landlord is delayed in any way by Tenant or Tenant's Representatives, the Premises shall be deemed substantially completed for purposes of this Section on the date when they would have been substantially completed but for such delay. (b) Tenant's taking possession of the Premises shall be conclusive evidence that the Premises were in good order, condition and repair when Tenant took possession, except for those matters (for which Landlord is responsible as provided in this Lease) of which Tenant gives Landlord notice within 10 days after taking possession. Landlord shall complete or repair such matters as soon as reasonably possible. (c) If Landlord is unable to deliver possession of the Premises to Tenant within 180 days after the Expected Commencement Date (the Outside Commencement Date), then Tenant, as its sole remedy, may terminate this Lease by notice to Landlord given within 10 days after the Outside Commencement Date. The Outside Commencement Date shall be extended by the period of any delay described in Section 1(a). Landlord shall not be liable to Tenant or any third party for its failure to deliver possession of the Premises to Tenant. If the Commencement Date does not occur within one year after the Expected Commencement Date, this Lease shall terminate and Landlord and Tenant shall have no further obligations to the other, except as may otherwise be provided in this Lease. (d) After the Commencement Date has been determined, Landlord and Tenant shall execute a supplemental agreement specifying the Commencement Date, Termination Date and such other information as Landlord shall reasonably require. 2. RENT. Tenant shall pay Monthly Installments of Base Rent in advance on the first day of each month of the Term. Monthly Installments of Base Rent for any partial month (including any partial month prior to the first Lease Year) shall be prorated on a per diem basis. All costs and expenses which Tenant assumes or agrees to pay and any other sum payable by Tenant pursuant to this Lease shall be deemed additional rent (together with Base Rent referred to as the Rent). The Rent shall be paid in lawful money of the United States of America to the Building Manager or to such other person or at such other place as Landlord may from time to time designate, without any prior notice or demand therefor and without deduction or offset. 3. LATE PAYMENTS. If any part of the Rent is not paid within 5 days after it is due, Tenant shall pay Landlord (a) an administrative fee of 5 percent of the amount due, and (b) interest on the amount due from its due date until paid at the lesser of 12 percent per annum or the maximum rate which Landlord may lawfully charge Tenant. 4. USE OF THE PREMISES. Tenant shall use the Premises only for general office purposes and the Permitted Use (if any) and all other uses or purposes are prohibited. Tenant shall not commit waste in the Premises and shall not store, dispose or generate any hazardous materials (except as is customary for an office use) or permit anything to be done in the Premises which causes injury to persons or to the Building, impairs the economic maintenance and operation of the Building, or interferes with or inconveniences other tenants or occupants of the Building. 5. RULES AND REGULATIONS. Tenant shall comply with and cause Tenant's Representatives to comply with the attached Rules and Regulations and with such reasonable modifications and additions as Landlord may from time to time make. Landlord shall not be responsible for the violation of the Rules and Regulations of others. 6. SERVICES. (a) Landlord shall furnish the following services (Normal Services): elevator service (if the Building is equipped with elevators) for use in common with the occupants of the Building; standard janitorial and cleaning services to the Premises and common areas of the Building; domestic water in reasonable quantities to the common areas (and the Premises, if required by this Lease); electricity for lighting the Premises and the operation of ordinary office equipment, but not in excess of that usually required for general office use during Normal Business Hours; and climate control to the Premises during Normal Business Hours as reasonably required for the comfortable use -2- of the Premises. (b) If any utilities or services are specially or exclusively supplied to Tenant or the Premises (Special Services), Tenant shall pay the cost of the Special Services to Landlord or the applicable utility company, as required. (c) To enable Landlord to fulfill its service obligations, Tenant shall comply with the conditions of occupancy and connected electrical load reasonably established by Landlord for the Building. Tenant shall not use utilities or other services in excess of Normal Services or in a manner which exceeds or interferes with any Building systems or Landlord's ability to provide services to other tenants in the Building. To avoid possible adverse effects upon the Building's electrical and mechanical systems, Tenant shall not, without Landlord's prior consent in each instance (which shall not be unreasonably withheld), connect air conditioning equipment, computers, appliances, heavy duty equipment or other similar electrical equipment (High Usage Equipment) to the Building's electrical system. Landlord may survey Tenant's use of services from time to time. Tenant shall pay Landlord all costs arising out of any excess use or the connection of High Usage Equipment, including the cost of all repairs and alterations to the Building's mechanical and electrical systems (including the installation of meters) and the cost of the additional electricity made available to Tenant, if any. Tenant shall pay such costs within 10 days of Landlord's demand therefor and as periodically billed to Tenant thereafter. (d) Landlord does not warrant that the services supplied by Landlord will be free from interruption. Any interruption or discontinuance of service shall not be deemed an eviction or disturbance of Tenant's use or possession of the Premises, or any part thereof, nor render Landlord liable to Tenant for damages by abatement of Rent or otherwise, nor relieve Tenant from performance of Tenant's obligations under this Lease. Landlord shall, however, exercise reasonable diligence to restore any services so interrupted. 7. REPAIRS AND MAINTENANCE. Tenant shall keep the Premises in good order and condition. Tenant shall give Landlord prompt notice of any damage to or defective condition in the Building. Except as provided in Sections 1, 6 and 8, Tenant shall be responsible for all repairs, replacements and alterations in and to the Premises. Landlord shall repair, replace and maintain those other portions of the Building which do not constitute a part of the Premises and are not leased to others (except as provided in Section 11). All repairs, replacements and maintenance shall be performed with reasonable promptness and in a good and workmanlike manner. 8. ALTERATIONS. (a) Alterations to the Premises shall not be made without the prior consent of Landlord, which shall not be unreasonably withheld. Unless Landlord permits Tenant to make approved alterations (which permission may be withheld in Landlord's sole discretion), alterations shall be made by Landlord and Tenant shall pay Landlord the cost thereof plus 15 percent for Landlord's overhead and profit within 10 days of Landlord's demand. If Tenant is permitted to make alterations, the work shall be done in accordance with such requirements as Landlord may reasonably impose. Any review or approval by Landlord of plans or specifications with respect to any alteration is solely for Landlord's benefit, and without any representation or warranty whatsoever to Tenant with respect to the adequacy, correctness or efficiency thereof. If required by Landlord, alterations shall be removed by Tenant upon the termination of the Term and Tenant shall at its expense repair any damage to the Premises or the Building caused by the removal. (b) Tenant shall indemnify and defend Landlord for, from and against any and all mechanics' and other liens and encumbrances filed by any person claiming through or under Tenant and against all costs, expenses, losses and liabilities (including reasonable attorneys' fees) incurred by Landlord in connection with any such lien or encumbrance or any action or proceeding brought thereon. Tenant at its expense shall procure the discharge of record of all such liens and encumbrances within 20 days after notice thereof. 9. INSURANCE. Tenant shall at its expense maintain property insurance on Tenant's property and above-standard leasehold improvements and comprehensive general liability insurance in such amounts as Tenant determines in its reasonable judgment. All such insurance shall be issued by insurers authorized to do business in the State, shall name Landlord as an additional insured or shall contain appropriate endorsements denying Tenant's insurers the right of subrogation against Landlord. Tenant shall, upon request, furnish Landlord with certificates evidencing such insurance coverages. If during the Term insurance premiums on any insurance policy carried by Landlord on the Building or the Premises are increased due to or resulting from Tenant's occupancy hereunder, Tenant shall pay to Landlord as additional rent the amount of the increase in insurance premiums within 10 days after Landlord's demand (accompanied by -3- reasonable evidence of the increase). 10. INDEMNIFICATION. Tenant shall indemnify and defend Landlord for, from and against all claims, expenses, liabilities and losses (other than those for which liability is waived by express provision in this Lease), including reasonable attorneys' fees, resulting from any injury in or upon the Land or Building to property or persons due to any negligence of Tenant or Tenant's Representatives or resulting from Tenant's failure to comply with the Laws (as provided in Section 11). Landlord shall indemnify and defend Tenant for, from and against all claims, expenses, liabilities and losses (other than those for which liability is waived by express provision in this Lease), including reasonable attorneys' fees, resulting from any injury in or upon the Land or the Building to property or persons due to any negligence of Landlord, its agents, employees or contractors or resulting from Landlord's failure to comply with the Laws (as provided in Section 11). Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each waive any claims (except claims arising under Section 11) that either of them may have against the other for any damage or injury to property caused by the other's negligence, including the Premises and the Building, arising from a peril coverable by fire or extended coverage insurance, whether or not caused by the other, or its agents, employees or contractors. Neither party shall in any event (except as provided in Sections 13 and 23) be liable to the other for indirect or consequential damages for any breach of this Lease. The provisions of this Section shall survive the termination or expiration of this Lease. 11. OBSERVANCE OF LAWS. Tenant shall at its expense comply with all laws, including the requirements and regulations of any governmental authority having jurisdiction (collectively, the Laws), including those which relate to: (a) the partitioning, equipment operation, alteration, occupancy and use of the Premises, (b) environmental matters (including the storage, disposal or generation of hazardous materials), (c) the making of any repairs, replacements or improvements to the Premises, and (d) any business conducted in the Premises. Except as provided in the preceding sentence, Landlord shall comply with all Laws which relate to the Building, provided nevertheless, that structural changes shall be the responsibility of Tenant if they are changes required by reason of a condition which has been created or caused by Tenant, or are required by reason of a default by Tenant. 12. SURRENDER OF THE PREMISES. Tenant, on the Termination Date or earlier expiration of the Term, shall surrender the Premises in as good condition as when Tenant took possession, except for reasonable wear and tear. Any of Tenant's property (except money and securities) left on the Premises shall be deemed abandoned and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale or, if Landlord elects to remove all or any part of Tenant's property, the cost of such removal, including repairing any damage to the Premises or Building caused by the removal and the cost of storage and sale, shall be paid by Tenant within 10 days of Landlord's demand. 13. HOLDING OVER. If Tenant retains possession of all or part of the Premises after the Termination Date, Tenant's occupancy shall be as a tenant at sufferance, terminable at any time by Landlord. Tenant shall pay Landlord rent for such time as Tenant remains in possession at the monthly rate of 150 percent of the Base Rent payable hereunder for the month immediately preceding the Termination Date plus all other Rent required by the terms of this Lease and, in addition thereto, shall pay Landlord for all damages (including consequential damages) sustained by reason of Tenant's retention of possession. The provisions of this Section do not exclude Landlord's rights of reentry or any other right hereunder. 14. DAMAGE. (a) If the Building, Land or Premises are damaged by fire or other casualty and this Lease is not terminated as provided below, Landlord shall repair the damage at its expense (except for excess costs related to above- standard leasehold improvements in the Premises which shall be at Tenant's expense), with reasonable promptness after notice to it of the damage; provided, however, that Landlord shall not be required to repair or replace any of Tenant's property or any alteration or improvements made by Tenant. If the Premises are damaged by fire or other casualty, then to the extent that the Premises are rendered untenantable, the Rent shall equitably abate from the date of the damage to the date the damage is repaired. If repairs are delayed in any way by Tenant -4- or Tenant's Representatives, the damage shall be deemed repaired for purposes of this Section on the date when they would have been repaired but for such delay. (b) If the Building, Land or Premises are substantially damaged by fire or other casualty, Landlord may terminate this Lease by notice to Tenant within 90 days after the date of the damage and this Lease shall terminate upon the 30th day after such notice by which date Tenant shall vacate and surrender the Premises to Landlord. The Rent shall be equitably prorated to the date of termination. The Building, Land or Premises (whether or not the Premises are damaged) shall be deemed substantially damaged if: (1) Landlord is required to expend for repairs more than 20 percent of the replacement value of the Building immediately prior to the damage, or (2) repair is not possible in accordance with Landlord's reasonable estimate within 180 days following the date of the damage. (c) If this Lease has not been terminated and Landlord does not substantially complete the repair or restoration of the Building, Land or Premises within 180 days after the date of the casualty, and if such failure has a material, adverse effect on Tenant's business in the Premises, Tenant may (provided such failure is not due to any fault of Tenant or Tenant's Representatives) terminate this Lease by notice to Landlord given within 10 days after the end of the 180-day period. Termination shall be effective 30 days after such notice is given unless Landlord shall substantially complete the repair or restoration within the 30-day period, in which case Tenant's notice of termination shall be deemed withdrawn. This Section is intended to provide the only remedies available to Tenant for damage caused by casualty and, therefore, to the extent permitted by Law, Tenant waives the provisions of any Laws which would provide alternative or additional remedies in the event of such damage. 15. CONDEMNATION. (a) If the Building, Land or Premises are taken for more than 180 days by condemnation or under threat thereof for any public or quasi-public purpose, this Lease shall terminate as of the date Tenant is required to vacate the Premises by reason of the taking and the Rent shall be equitably prorated to such date. If any part of the Building or Land is so taken, this Lease shall be unaffected by such taking, except that (1) Landlord may terminate this Lease by notice to Tenant within 90 days after the date of taking if (A) the cost of restoration will exceed the award received as a result of the taking, (B) repair is not possible in accordance with Landlord's reasonable estimate within 180 days following the date of the taking, or (C) in Landlord's reasonable judgment, it will be unable to economically operate the Building in light of Landlord's agreements ad obligations regarding the Building, and (2) Tenant may terminate this Lease by notice to Landlord within 90 days after the date of taking if 20 percent or more of the Premises shall be taken and the remaining area of the Premises shall not be reasonably sufficient for Tenant to continue operation of its business. This Lease shall terminate on the 30th day after such notice by which date Tenant shall vacate and surrender the Premises to Landlord and the Rent shall be equitably prorated to such date. If this Lease continues in force upon a temporary taking (180 days or less) or a partial taking, the Base Rent, Tenant's Proportionate Share and other relevant items shall be equitably adjusted according to the rentable area of the Premises and Building remaining. (b) In the event of any taking, all of the proceeds of any award payable by the condemning authority shall be and remain the sole and exclusive property of Landlord, and Tenant hereby assigns all of its right, title and interest in and to any award to Landlord. Tenant, however, shall have the right, to the extent that the same shall not reduce, delay or prejudice Landlord's award, to claim from the condemning authority, but not from Landlord, such compensation as may be recoverable by Tenant in its own right for moving expenses. 16. ASSIGNMENT AND SUBLETTING. (a) Tenant shall not, either directly or indirectly (including transfers of interests in Tenant), assign or encumber this Lease or any interest therein or sublet the Premises or any part thereof without the prior consent of Landlord in each instance, which consent shall not be unreasonably withheld; provided, however, in no event may this Lease be assigned or the Premises sublet to any governmental authority or agency or to any tenant or occupant of the Building, nor may the rental rate of any sublease be less than the market rate for such space. The consent by Landlord to an assignment or subletting shall not be construed to relieve Tenant from obtaining Landlord's consent to any further assignment or subletting. (b) Tenant shall give Landlord notice of Tenant's intent to assign this Lease or sublet the Premises in whole or in part (including Tenant's estimate of the date the assignment or sublease will be effective (Estimated Date) and, in the case of a sublease, the area affected and the intended period of the sublease) and Landlord shall have the option, exercisable by delivery to Tenant of notice within 90 days after receipt of Tenant's notice, to terminate this Lease (in the case of a proposed assignment) or to terminate or suspend this Lease as to that portion of the Premises which Tenant seeks to sublet (if Landlord elects to suspend, the Lease with respect to the sublet area shall be -5- suspended only during the period specified by Tenant in its notice and the Rent shall be equitably reduced only for such period). If Landlord fails to give such notice, Landlord shall be deemed to have rejected its option to terminate or suspend and Tenant may proceed to attempt to assign or sublet, subject to the requirements of this Section 16, including Landlord's prior consent. If Landlord exercises its option to terminate or suspend, Landlord shall be entitled to recover possession of all or such portion of the Premises as is applicable and Tenant shall vacate the same on the later of the date which is 60 days after the giving of Landlord's notice of termination (or suspension) or the Estimated Date, the Rent shall be adjusted to the date of vacation and thereafter (or for the period of the suspension) Tenant shall be relieved of all liability for the vacated portion of the Premises. In the case of a suspension, Landlord shall redeliver possession of the suspended portion of the Premises to Tenant "as is" at the expiration thereof. (c) If Landlord gives its consent to any assignment of this Lease or to any sublease, Tenant shall in consideration therefor, pay to Landlord, as additional rent: (1) in the case of an assignment, an amount equal to all sums and other consideration paid to Tenant by the assignee for or by reason of such assignment (including any sums paid for the sale, rental or use of Tenant's property in excess of the then market value of Tenant's property), less the reasonable expenses actually paid by Tenant in connection with the assignment; and (2) in the case of a sublease, any rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant (including any sums paid for the sale, rental or use of Tenant's property in excess of the then market value of Tenant's property) which are in excess of the Rent during the term of the sublease in respect of the subleased space, less the reasonable expenses actually paid by Tenant in connection with the subletting. The sums payable hereunder shall be paid to Landlord as and when payable by the assignee or subtenant to Tenant. (d) No assignment or subletting shall affect the continuing primary liability of Tenant (which, following an assignment, shall be joint and several with the assignee), and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease. 17. SUBORDINATION. This Lease and all rights of Tenant hereunder shall be, at the option and designation of Landlord, subordinate or superior to any lease of the Building or Land (an Underlying Lease) and to any mortgage or deed of trust (a Mortgage) which may now or hereafter affect the Building or Land. If Landlord designates this Lease as subordinate or superior to any Underlying Lease or Mortgage, this Section shall be self-operative and no further agreements of subordination or superiority shall be required but, in confirmation of such subordination or superiority, Tenant shall promptly execute, acknowledge and deliver any agreement that Landlord, the lessor under any Underlying Lease (Lessor) or the holder of any Mortgage (Mortgagee) or any of their respective assigns or successors in interest may reasonably request to evidence such subordination or superiority. If any Lessor or Mortgagee (or any purchaser at a foreclosure sale) succeeds to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed (a Successor Landlord), Tenant shall, upon request, attorn to and recognize the Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any agreement that the Successor Landlord may reasonably request to evidence such attornment. If a Lessor, Mortgagee or Successor Landlord requires that an agreement of subordination, superiority or attornment be executed by Tenant in accordance with this Section, Tenant's failure to do so within 15 days after Landlord's request shall be deemed an event of default under this Lease. 18. ESTOPPEL CERTIFICATE. Tenant shall from time to time deliver to Landlord a statement in writing certifying the status of this Lease and any options contained herein, the performance hereunder of Landlord and Tenant and such other matters as Landlord shall reasonably request. Tenant's failure to do so within 15 days after Landlord's request shall be deemed an event of default under this Lease. 19. TRANSFER OF LANDLORD'S INTEREST. The term "Landlord" as used in this Lease shall be limited to mean and include only the owners of Landlord's interest in this Lease at the time in question. Upon any transfer of such interest, Landlord herein named (and in case of any subsequent transfer, the then transferor) shall thereafter be relieved of all liability for the performance of any obligations on the part of Landlord contained in this Lease. -6- 20. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of the terms, covenants and conditions on its part to be performed, shall peaceably and quietly enjoy the Premises subject, nevertheless, to the terms of this Lease. 21. RIGHTS RESERVED TO THE LANDLORD. Landlord reserves the right: (a) to name the Building and Office Park, to change the name or street address of the Building and Office Park, and to install and maintain all signs in the Office Park (including the exterior and interior of the Building); (b) on reasonable prior notice to Tenant, to exhibit the Premises to any prospective purchasers or mortgagee of the Building or Land and to others having an interest therein at any time during the Term, and to prospective tenants during the last 12 months of the Term; (c) to enter the Premises to make necessary inspections, repairs and adjustments or otherwise to comply with the terms of this Lease; and (d) to relocate, alter, improve, reduce or add to the configuration of and the various facilities and improvements within the Building, the Land and the Office Park, provided that the change shall not materially restrict Tenant's access to or use of the Premises. 22. DEFAULT. The following shall be deemed events of default under this Lease: (a) Tenant's failure to make any payment of Rent when it is due and payable (provided that Tenant shall be entitled to 10 days notice of nonpayment during which Tenant may cure the default, unless on 2 prior occasions within the same 12-month period there has been a default in the payment of Rent which has been cured after notice has been given by Landlord, in which case no such notice need be given for the remainder of the 12-month period and no such default in the payment of Rent shall be curable, except as may be required by applicable Laws), (b) any matter defined as an event of default in this Lease, (c) Tenant's failure to cure a default in the performance of any other covenant or obligation of Tenant under this Lease within a period of 30 days after notice from Landlord specifying the default (or if the specified default is not capable of cure within the 30-day period, if Tenant fails immediately after notice from Landlord to commence to cure the default and diligently to pursue completion of the cure during and after the 30-day period), and (d) Tenant's failure to occupy substantially all of the Premises within 30 days after Landlord delivers the Premises to Tenant in the condition required by this Lease or Tenant's vacation of more than 50 percent of the Premises for more than 30 days except in accordance with an approved assignment or sublease. 23. REMEDIES. (a) If any event of default occurs, Landlord may, without prejudice to Landlord's other rights hereunder and in addition to all other rights and remedies which Landlord may have under the Laws: (1) cure such default and any reasonable costs and expenses incurred by Landlord therefor shall be deemed additional rent payable on demand; or (2) with or without terminating this Lease, reenter the Premises and take possession thereof from Tenant by legal proceedings or otherwise. If Landlord takes possession of the Premises and if the remedy provided in this Section 23(a)(2) is permitted under the Laws after termination of a lease, this Lease shall terminate, otherwise it shall remain in full force and effect. Thereafter Landlord may recover from Tenant: (A) the worth at the time of award of the unpaid Rent which had been earned at the time of such termination; (B) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (C) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (D) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in Subdivisions (A) and (B) is computed by allowing interest at the lesser of 12 percent per annum or the maximum rate which Landlord may lawfuuly charge Tenant. The worth at the time of award of the amount referred to in Subdivision (C) is computed by discounting such amount at the discount rate of the nearest Federal Reserve Bank at the time of award plus one percent. Efforts by Landlord to mitigate the damages caused by Tenant's breach of this Lease shall not constitute a waiver of Landlord's right to recover damages under this or any other Section. Nothing in this Section shall affect Landlord's rights to indemnification under any of the other provisions of this Lease; or (3) continue this Lease in full force and effect for so long as Landlord does not exercise Landlord's -7- right to terminate this Lease and Landlord may enforce all Landlord's rights and remedies under this Lease, including the right to recover the Rent as it becomes due. For purposes of this Section, the following acts by Landlord shall not constitute a termination of Tenant's right to possession of the Premises or a termination of the Lease: (A) acts of maintenance or preservation or effects to relet the Premises; or (B) the appointment of a receiver upon the initiative of Landlord to protect Landlord's interest under this Lease. (b) Landlord shall use reasonable efforts to mitigate its damages in the event of Tenant's default. If Tenant has vacated the Premises, Landlord shall be deemed to have satisfied its obligation under this provision if it markets the Premises in the same manner as it markets other available space in the Building or the Office Park (if applicable). Landlord, however, shall not be required to prefer the Premises over such other available space. (c) Except as provided in Section 23(a)(2), no reentry or taking possession of the Premises by Landlord shall be construed as an election to terminate this Lease, unless notice to such effect is given by Landlord to Tenant. If Landlord does reenter or take possession without terminating this Lease, Landlord may, at any time thereafter, terminate this Lease by giving notice to Tenant. All of the remedies given to Landlord in this Lease upon any event of default are in addition to all other rights or remedies to which Landlord may be entitled under the Laws, including, if available, the right to restrict Tenant's access to the Premises; all such remedies shall be deemed cumulative and the election of one shall not be deemed a waiver of any other or further rights or remedies. Unless otherwise expressly provided herein, Tenant's obligation to pay all the Rent due through the Termination Date shall survive any termination or expiration of this Lease. 24. SECURITY DEPOSIT Tenant has deposited with Landlord the Security Deposit as security for the faithful performance of every provision of this Lease to be performed by Tenant. If Tenant defaults with respect to any provision of this Lease, including payment of the Rent, Landlord may apply all or any part of the Security Deposit for the payment of any Rent or to compensate Landlord for any other loss, cost or liability which Landlord may incur by reason of Tenant's default. If any portion of the Security Deposit is so applied, Tenant shall, within 10 days after notice thereof, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall be deemed an event of default under this Lease. The Security Deposit or any balance thereof shall be returned to Tenant without interest (or, at Landlord's option, to the last transferee of Tenant's interest hereunder) at the expiration of the Term and upon Tenant's vacation of the Premises in accordance with the terms of this Lease. If the Building is sold, the Security Deposit may be transferred to the new owner and Landlord shall be discharged from further liability with respect thereto. 25. BANKRUPTCY. If Tenant files a voluntary petition pursuant to the Bankruptcy Code (including any successor code) or takes the benefit of any insolvency act or is dissolved, or if an involuntary petition is filed against Tenant pursuant to the Bankruptcy Code and the petition is not dismissed within 60 days after the filing, or if a receiver is appointed for Tenant's business or assets and the appointment of the receiver is not vacated within 60 days after the appointment, or if Tenant shall make an assignment for the benefit of creditors, then Landlord shall have all of the rights provided in Section 23 for nonpayment of the Rent to the extent permitted by the Laws. 26. FORCE MAJEURE. Landlord shall be excused for the period of any delay in the performance of any obligations hereunder when prevented from doing so by causes beyond its control, including labor disputes, civil commotion, hostilities, sabotage, governmental regulations or controls, fire or other casualty, inability to obtain any material, financing or services, and acts of God. Tenant shall similarly be excused for delay in performance of any obligation hereunder, provided that nothing contained in this Section shall be deemed to excuse or permit any delay in the payment of Rent or any delay in the cure of any default which may be cured by the payment of money. 27. LIMITATION OF LIABILITY. If Landlord becomes obligated to pay Tenant a money judgment arising out of any failure by Landlord to perform any of its obligations under this Lease, Tenant shall be limited for the satisfaction of the money judgment solely to Landlord's interest in the Building and Land and no other property or assets of Landlord or the individual partners, directors, officers, or shareholders of Landlord shall be subject to levy, execution or other enforcement procedure whatsoever for the satisfaction of the money judgment. -8- 28. PARKING. (a) Landlord hereby permits Tenant the right to use the Parking Spaces. Landlord, at its sole election, may designate the types and locations of the Parking Spaces and Landlord shall have the right, at Landlord's sole election, to change the types and locations from time to time; provided, however, such designation shall not reduce the number of Parking Spaces permitted Tenant by this Lease. If Landlord institutes an automobile identification procedure, Tenant shall cooperate with Landlord's reasonable requirements therefor. (b) Commencing on the Commencement Date, Tenant shall pay Landlord the Parking Fee, if any, as additional rent, payable monthly in advance with Monthly Installments of Base Rent. Thereafter, and throughout the Term, the Parking Fee may be changed from time to time based on Landlord's standard parking rates (plus any amounts assessed or required to be paid to any governmental authority on account of the parking of motor vehicles) for each type of parking space provided to Tenant. 29. RELOCATION. Landlord may elect by notice to Tenant to substitute for the Premises other office space in the Building or the Office Park (the Substitute Premises) designated by Landlord and reasonably satisfactory to Tenant, provided that the Substitute Premises shall contain at least the same usable area as the Premises and have a configuration substantially similar to the Premises. Landlord shall, at Landlord's expense, be responsible for: (a) completion of all improvements to the Substitute Premises to Tenant's reasonable satisfaction, (b) moving all of Tenant's property, (c) prompt reimbursement of all Tenant's reasonable out-of- pocket expenses incurred by Tenant in connection with Tenant's move from the Premises to the Substitute Premises provided such costs are approved by Landlord in advance, which approval shall not be unreasonably withheld. Tenant shall vacate and surrender the Premises and shall occupy the Substitute Premises within 15 days after Landlord has substantially completed the work to be performed by Landlord in the Substitute Premises pursuant to this Section. Tenant shall pay the same Rent with respect to the Substitute Premises as was payable with respect to the Premises, notwithstanding that the usable area of the Substitute Premises may be greater than that of the Premises. This Lease shall remain in full force and effect, and the Substitute Premises shall thereafter be deemed to be the Premises. 30. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any other party (including a broker or other agent) in connection with this Lease except Broker. Tenant shall indemnify and defend Landlord for, from and against any claims, expenses, liabilities and losses (including reasonable attorneys' fees) resulting from any compensation , commissions or charges claimed by or owing to any other party in connection with this Lease by reason of any act of Tenant. 31. NOTICES. All notices, demands, consents, approvals, elections or other communications permitted or required to be given hereunder (a notice or notices) shall be in writing and shall be deemed given on the date of actual receipt by the party to which it is directed, notwithstanding any further direction to the attention of any individual or department; provided that if notices are required by this lease to be sent to the attention of any individual or department, the notice shall be effective only if the envelope or wrapper in which it is sent is so addressed. Notices shall be addressed as follows: (a) if to Landlord, to the Landlord's Mailing Address and to the Building Manager, and (b) if to Tenant, to the Tenant's Mailing Address. Any address or name specified above may be changed by a notice given to the addressee by the other party in accordance with this Section. The inability to deliver a notice because of a changed address for which no prior notice was given or rejection or other refusal to accept any notice shall be deemed to be the receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. 32. MISCELLANEOUS. (a) This Lease shall be deemed to have been made in and shall be construed in accordance with the Laws of the State. This lease has been executed in several counterparts, all of which constitute one and the same instrument. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease or of any provisions hereof. This Lease sets forth all the agreements and understandings between Landlord and Tenant and there are no agreements or understandings, either oral or written, between them other than as are herein set forth. No -9- amendment or change to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by both of them. (b) As used in this Lease, any list of one or more items preceded by the word "including" shall not be deemed limited to the stated items but shall be deemed without limitation. (c) If any provision of this Lease is or becomes illegal or unenforceable because of current or future Laws effective during the Term, the intention of the parties hereto is that the remaining parts of this Lease shall not be affected thereby. (d) The failure of either party to exercise any remedy or election shall not be construed as a waiver for the future of such remedy or election, but the same shall remain in full force and effect. The receipt by Landlord of full or partial Rent with knowledge of a breach of this Lease shall not be deemed a waiver of such breach. No payment of a lesser amount than the Rent due Landlord shall be deemed to be other than on account of the Rent and Landlord may accept payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy provided in this Lease, notwithstanding any endorsement or statement accompanying the payment to the contrary. (e) In any proceeding which Landlord or Tenant may prosecute to enforce its rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party (as such parties are hereafter defined), including reasonable attorneys' fees. Prior to commencing any proceeding the parties shall each submit to the other a final offer of settlement. The failure of a party (as plaintiff) to submit a settlement offer shall be deemed a demand for all the relief requested in its complaint and the failure of a party (as defendant) to submit a responding settlement offer within 10 days after its receipt of a settlement offer shall be deemed a rejection of any relief for the benefit of the plaintiff. If the forum in which the proceeding is heard renders a judgment at least as favorable to a party as its settlement offer, such party shall be deemed the prevailing party for purposes of this Section. (f) If any proceeding is commenced between the parties to settle any dispute, neither Landlord nor Tenant shall permit its attorneys to engage in any dilatory conduct. At the conclusion thereof and regardless of the outcome, the attorneys appearing of record for both parties shall be required to submit themselves to the judge or other adjudicator for a review of their conduct during the proceeding. If any such attorney is found to have engaged in dilatory conduct, that attorney shall agree to perform up to 10 hours of community or pro bono service, as directed by the judge or adjudicator. (g) If Landlord commences any summary proceeding (or equivalent) or an action for nonpayment of Rent, Tenant shall not interpose any non-mandatory counterclaim of any nature or description in the proceeding or action, provided that this prohibition shall not prevent Tenant from raising any appropriate defense in such proceeding or action and any such underlying claim shall be preserved for any subsequent action commenced by Tenant against Landlord. Tenant and Landlord both waive a trial by jury of any or all issue arising in any action or proceeding between the parties under this Lease. (h) All the terms and provisions of this Lease shall be binding upon and, except as prohibited or limited by Section 16, inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. (i) In no event shall this Lease be recorded. If Tenant records this Lease in violation of the terms hereof, such action shall be deemed an event of default. (j) Time shall be of the essence regarding the payment of Rent and, if Tenant is granted (by express provision of this Lease) any option to extend or shorten the Term or expand or reduce the size of the Premises, time shall be of the essence regarding the exercise by Tenant of any such options. (k) Tenant shall assume and pay to Landlord at the time of paying the rent any excise, sales, use, gross receipts or other taxes (other than a net income or excise profits tax) which may be imposed on or measured by such Rent or may be imposed on or account for this Lease (including utilities and other services specially or separately billed or supplied to Tenant) and which Landlord may be required to pay or collect under any Laws now in effect or hereafter enacted. Tenant shall also assume and pay all taxes on the value of Tenant's leasehold improvements in excess of Landlord's standard improvements. (l) If more than one person or entity executes this Lease as Tenant, each such person or entity shall be jointly and severally liable for observing and performing each of the terms, covenants, conditions and provisions to be observed or performed by Tenant. [Map] [Map] RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts and stairways of the Building shall not be obstructed or used for any purpose other than ingress and egress to and from the tenant's premises. 2. Nothing shall be attached to the outside walls or windows of the Building. No curtains, blinds, shades, or screens shall be used in connection with any exterior window or door of the tenant's premises, except as Landlord designates as Building standard. 3. No sign, advertisement, object, notice or other lettering shall be exhibited, inscribed, painted or affixed on any part of the outside, or inside if visible from the outside, of the tenant's premises or the Building without the prior consent of Landlord. 4. The restrooms and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed. No tenant shall bring or keep any inflammable, combustible, explosive or hazardous fluid, material, chemical or substance in or about the tenant's premises without Landlord's prior consent. 5. No tenant shall mark, paint, nail, tape or drill into any part of the Building except the premises, and then only with the prior consent of Landlord. No tenant shall install any resilient tile or similar floor covering in the tenant's premises except in a manner approved by Landlord. 6. No bicycles, vehicles or animals of any kind shall be brought into the tenant's premises (except as may be required by handicapped persons). No cooking shall be done or permitted in the Building by any tenant without the approval of Landlord, except as is customary for general office purposes (such as the use of microwave ovens and coffee machines). No tenant shall cause any unusual or objectionable odors to emanate from the tenant's premises. 7. No tenant shall create, or permit to be created, any nuisance, or interfere with other tenants or occupants of the Building or neighboring buildings or premises. 8. No additional locks or bolts of any kind shall be placed upon any of the doors or windows, nor shall any changes be made in locks or the mechanism thereof. Each tenant shall, upon the termination of its tenancy, deliver to Landlord all keys of stores, offices and restrooms obtained by such tenant. 9. Landlord shall have the right to prohibit any advertising by any tenant which, in Landlord's reasonable opinion, impairs the reputation of the Building. 10. If the tenant's premises become infested with vermin, such tenant, at its sole cost and expense, shall cause its premises to be exterminated, from time to time, to the satisfaction of Landlord, and shall employ such exterminators therefor as shall be approved by Landlord. 11. No premises shall be used, or permitted to be used for lodging or sleeping, or for any illegal purpose. 12. The requirements of tenants will be attended to only upon application at the office of the Building Manager. Building employees shall not be required to perform any work outside of their regular duties, unless under specific instructions from the office of Building Manager. 13. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate in seeking their prevention. 14. In the delivery or receipt of merchandise, freight or other matter, only hand trucks or other means of conveyance equipped with rubber tires, rubber side guards and such other safeguards as Landlord may require shall be used. 15. With respect to work being performed by a tenant in its premises with the approval of Landlord, the -2- tenant shall refer all contractors, contractors' representatives and installation technicians to the Building Manager for its supervision, approval and control prior to the performance of any work or services. This provision shall apply to all work performed in the Building including installation of telephones, electrical devices and attachments. 16. Each tenant and all of Tenant's Representatives shall observe and comply with the driving and parking signs and markers on the Land and the Office Park and Landlord shall not be responsible for any damage to any vehicle towed because of noncompliance with parking regulations. 17. No radio or television antenna, loudspeaker, music system or other device shall be installed on the roof or exterior walls of the Building or on common walls with adjacent tenants. 18. No material shall be placed in the trash boxes or receptacles in the Building unless such material may be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage and will not result in a violation of any Laws governing such disposal. All garbage and refuse disposal shall be made only through entryways provided for such purposes and at such times as Landlord shall designate. 19. If the Building is equipped with elevators, at least one elevator shall remain in service at all times. Landlord may designate a specific elevator for use as a service elevator. 20. Tenant shall pay to Landlord on demand the costs incurred by Landlord for extra or unusual cleaning required because of the condition or nature of the Premises. 21. If Tenant requires climate control at any time after Normal Business Hours, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant, and Tenant shall pay Landlord's charges therefor on demand. 22. No vending machines of any kind shall be installed in the tenant's premises, except by Landlord upon the tenant's request. Only Landlord may install vending machines in the Building and Landlord shall receive all of the revenue derived therefrom. EXPENSE ESCALATION EXPENSE CONTRIBUTION ESCALATION. The Base Rent does not include any amount reflecting taxes on the Land, the Building and other improvements on the Land (collectively the Property) or the cost of operations and maintenance of the Property. In order that the Rent payable throughout the Term shall reflect any such taxes and cost, the parties agree as follows: 1. DEFINITIONS (a) REAL ESTATE TAXES: (1) all general and special taxes, assessments, duties and levies, if any, payable (adjusted after protest or litigation, if any) for any part of the Term, exclusive of penalties or discounts, on the Property; (2) any service, user or license fees or taxes, or any taxes which shall be levied on the rentals of the Building in addition to or in lieu of any of the foregoing in whole or in part; and (3) the reasonable expenses of contesting the amount or validity of any such taxes, charges or assessments, such expense to be applicable to the period of the item contested. (b) OPERATING EXPENSES: all expenses paid or incurred by Landlord or on Landlord's behalf in respect of the management, repair, operation and maintenance of the Property, including: (1) utilities; (2) rent, casualty, liability and fidelity insurance; (3) cleaning, snow and ice removal, and security services; (4) landscaping; (5) alterations and improvements to the Property made by reason of the Laws or the requirements of insurance bodies; (6) management fees or, if an independent property manager is not employed by Landlord, a sum which is not in excess of the then prevailing rates for management fees of other comparable buildings in the area in which the Building is located; (7) capital improvements, replacements or additions to the Property made during the Term which Landlord reasonably projects will reduce Operating Expenses, but only to the extent of the projected reduction for each relevant calendar year; (8) reasonable administrative expenses; (9) expenses (including real estate taxes) attributable to the Property as part of an Office Park (if applicable); and (10) all other charges properly allocable to the repair, operation and maintenance of the Building in accordance with generally accepted accounting principles. Operating Expenses shall not include expenses for any capital repairs, replacements or improvements (except as provided above); depreciation; expenses (other than Operating Expenses) for which Landlord is reimbursed; brokerage commissions, advertising expenses and expenses of renovating space incurred in procuring new tenants; interest on and amortization of debts; and any cost or expense representing an amount paid to a related or affiliated person or entity which is in excess of the amount which would be paid in the absence of such relationship. (c) If during any calendar year the Building is not fully occupied or if any tenant of the Building (other than Tenant) furnishes to itself any services which would otherwise have been furnished by Landlord, Operating Expenses shall be adjusted to the expiration of each calendar year as if the Building were 95 percent occupied during the entire year and as if Landlord had furnished such services. "Fully occupied" shall be defined as occupancy of 95 percent or more of the rentable area of the Building. 2. TOTAL EXPENSES. Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the sum of the Real Estate Taxes and the Operating Expenses for each calendar year during the Term (the sum is referred to as the Total Expenses). Tenant's Proportionate Share of the total Expenses shall be prorated as necessary for the first and last calendar years of the Term if the Commencement Date or Termination Date are other than the first or last day of the year, respectively. 3. CURRENT PAYMENTS AND ADJUSTMENT. (a) In order to provide for current payments on account of Total Expenses Tenant shall pay as additional rent, together with Monthly Installments of Base Rent, an amount equal to Tenant's Proportionate Share of the Total Expenses due for the ensuing 12 months (as reasonably estimated by Landlord from time to time) in 12 equal monthly installments commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount. (b) On or before April 1 of each calendar year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement (certified by an officer of Landlord) of Tenant's Proportionate Share of the Total Expenses for the preceding calendar year. If Tenant's Proportionate Share of the actual Total Expenses for the previous calendar year exceeds the aggregate of the estimated monthly payments made by Tenant for that year, Tenant shall within 10 days of receipt of the -2- statement, pay Landlord such excess as additional rent. If the aggregate exceeds Tenant's Proportionate Share of the actual Total Expenses, then Landlord shall credit against Tenant's next ensuing monthly installment or installments of the Rent an amount equal to the difference until the credit is exhausted. 4. TERMINATION. (a) Landlord may at any time after the end of the Term give Tenant notice of Landlord's reasonable estimate of Tenant's Proportionate Share of the Total Expenses for the calendar year in which the Term ends. Tenant shall within 30 days after receipt of such notice pay Landlord the amount specified. Adjustments shall thereafter be made in accordance with this Section. (b) If a credit is due from Landlord at the end of the Term or at the time of adjustment, Tenant shall be entitled to receive the amount of the credit in the form of payment from Landlord, provided that Landlord may, in lieu of such payment, apply the credit against any Rent which is due but not paid on that date. No interest or penalties shall accrue on any amounts which Landlord is obliged to credit or pay to Tenant by reason of this Rider. 5. STATEMENTS. Each statement given by Landlord pursuant to this Rider shall be conclusive and binding upon Tenant unless within 60 days after receipt of the statement Tenant shall notify Landlord that it disputes the correctness of the statement, specifying the particular respects in which it is claimed to be incorrect. Pending resolution of the dispute, Tenant shall pay additional rent in accordance with the statement but such payment shall be without prejudice to Tenant's position. If the dispute is determined in Tenant's favor, Landlord shall immediately credit Tenant the amount of Tenant's overpayment of additional rent resulting from compliance with Landlord's statement. If resolution of the dispute indicates that Tenant underpaid, Tenant shall immediately pay Landlord the amount of such underpayment (no interest shall be due thereon, provided Tenant paid all additional rent due in accordance with this Rider). Landlord shall grant Tenant reasonable access to Landlord's books and records for the purpose of verifying the Total Expenses. WORK LETTER Landlord and Tenant agree as follows: 1. (a) Landlord shall prepare the Premises (the Work) in accordance with the Plans (hereinafter defined). Landlord shall prepare a preliminary layout with Tenant's cooperation and for Tenant's approval. Tenant's failure to approve or disapprove the layout within 5 days of its receipt by Tenant shall be deemed as approval. Upon approval of the layout Landlord shall prepare working drawings adequate in detail to perform the Work (together with the preliminary layout, the drawings are referred to as the Plans). Tenant's failure to approve or disapprove the drawings within 5 days of their receipt by Tenant shall be deemed as approval. Tenant shall not unreasonably withhold its approval of the Plans or any part thereof. Any programming or interior design services or unreasonable or excessive revisions to the Plans required by Tenant shall be at Tenant's sole cost and expense and shall be considered a Tenant delay. (b) Except as set forth in this Work Letter, Landlord has no other agreement with Tenant and has no other obligation to do any other work with respect to the Premises. 2. If Landlord further agrees to do, at Tenant's request and upon submission by Tenant (at Tenant's sole cost and expense) of all necessary drawings, plans and specifications, any other work in addition to the Work described in Section 1 hereof, such other work shall be done at Tenant's sole cost and expense as a Tenant's extra. Prior to commencing any such other work requests by Tenant, Landlord shall submit to Tenant written estimates of the cost of such other work. If Tenant shall fail to approve said estimates within 5 days from the receipt thereof, the same shall be deemed disapproved in all respects by Tenant and Landlord shall not be authorized to proceed thereon. Tenant agrees to pay to Landlord promptly upon being billed therefor, at any time and from time to time, the cost of all such other work together with 15 percent of said cost for Landlord's profit and overhead. 3. Landlord, at Landlord's discretion, may permit Tenant and Tenant's agents to enter the Premises prior to the Commencement Date in order that Tenant may do such other work as may be required by Tenant to make the Premises ready for Tenant's use and occupancy. If Landlord permits such entry prior to the Commencement Date, such permission is conditioned upon Tenant and Tenant's Representatives working in harmony and not interfering with Landlord and its agents, contractors and employees in doing Landlord's work in the Premises or for other tenants and occupants of the Building. If at any time such entry shall cause or threaten to cause disharmony or interference, Landlord shall have the right to withdraw such permission upon 24 hours notice to Tenant. Tenant agrees that any such entry into and occupation of the Premises shall be deemed to be under all of the provisions of the Lease except as to the covenant to pay Base Rent, and Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's work and installations made in the Premises or to properties placed therein prior to the commencement of the Term, the same being at Tenant's sole risk. 4. (a) Landlord shall provide Tenant an allowance (the Allowance) which shall be applied to the cost of Work and Plans and which shall be an amount up to the product of (1) the usable square footage of the Premises (measured by Landlord in accordance with ANSI 765.1-1980 as published by BOMA International), multiplied by (2) the Square Foot Allowance, as defined in Section 4(b). If the cost of the Work and Plans exceeds the Allowance, Tenant shall pay such excess as additional rent within 20 days after demand therefor. (b) the Square Foot Allowance shall be: $8.00. Attachment 7 Plans and Specifications of Leasehold Improvements and Tenant Layout will be attached upon completion. EX-10.52 17 EXHIBIT 10.52 LEASE AGREEMENT [Translation] This Agreement is made as of February 29, 1996 by and between Wu-hsiang Lin (hereinafter called "Party A") and Novellus Systems Taiwan (hereinafter called "Party B") for the lease of property. ARTICLE 1 SUBJECT OF THE LEASE (1) Party A shall lease one unit of the property which it owns at S/F-3 295, Section 2 Kuang Fu Road, Hsinchu, to Party B for office use. The location is shown in the attachment and the interior is as in its current condition. The total area of lease is 78.36 pings. (2) ____parking spots numbered ___ at basement___ of the same building as the premises concerned shall be leased along with the premises for parking purposes. The location is shown in the attachment and the condition is as the current one. ARTICLE 2 TERM This Agreement shall be a term of two years from March 1, 1996 to February 28, 1998 and terminated at its expiry and shall not be renewed unless agreed to in writing by Party A. ARTICLE 3 RENTAL (1) The monthly rental of the premises of the first year shall be NT$74,442, with $950 per ping. (2) The rental of the parking spots of the first year shall be NT$__________. (3) Upon the execution of this Agreement, Party B shall issue 12 cheques as payment of the total rental of NT$893,304 to Party A. Each period of rental payment shall comprise one month. If any of the cheques is dishonored, a late charge of 1% of the monthly rental due shall be payable to Party A for each day the cheque is dishonored. If the honoring of the cheque is delayed for up to ten days, Party A may terminate the Agreement and discontinue the water and power supply of the premises, in which case Party B shall have no objection -1- and shall immediately vacate the premises and pay off the outstanding rental, late charge, other fees due and compensation for Party A's losses. ARTICLE 4 DEPOSIT (1) Party B shall pay a deposit of NT$223,326 to Party A upon the execution of the Agreement. Any deposit left after Party B vacates and returns the premises and after any outstanding rental and payment for damage to the premises or payment due form Party B pursuant to the Agreement but not paid is deducted at the expiry of the lease shall be refunded to Party B free of interest. (2) Party B shall neither claim to pay the rental with the deposit nor use the receipt of the deposit as guarantee of any liability during the lease. ARTICLE 5 COMMON LAND AND FACILITIES (1) Common land and facilities shall include passageways, lift lobby, stairwells, lavatories, kitchen and electricity room of the building. (2) Party A shall have free access to the above area and may use the above facilities, provided it shall not place objects, install additional residential facilities or perform any act that impedes the common use of such area and facilities. (3) Party B shall be liable for any damage incurred from its improper use of the common area and facilities. (4) Party B shall apply to the Directorate General of Telecommunications for connection of telephone lines at its own cost using the lines and sockets preinstalled by Party A. (5) Party B shall comply with regulations pertaining to the use of the premises and parking spots such as Residents' Convention or Building Management Regulations. ARTICLE 6 WATER AND ELECTRICITY BILLS, TAX AND MANAGEMENT FEE (1) During the lease, Party B shall bear the water and electricity bills, telephone bills, common facilities cost, business tax and other costs incurred from use of the premises by the lessee. -2- (2) The property tax and income tax on the lease shall be borne by Party A. (3) Party B shall pay a management fee to the management committee of the building on schedule. (4) Upon the execution of the agreement, Party A shall collect and deliver a total management fund of $11,754, with $150 per ping, to the management committee of the Empire Trade Building as working fund for the management of the building, and shall return such fund to Party B free of interest upon Party B's vacating the premises. ARTICLE 7 DECORATION AND RENOVATION If it is necessary for Party B to install facilities or production equipment within the premises, it shall obtain the prior written consent of Party A, provided the structure of the construction shall not be affected. All costs incurred shall be borne by Party B. Upon the extinguishment of the lease, the original condition shall be borne by Party B. Upon the extinguishment of the lease, the original condition shall be restored by Party B except for items accepted by Party A, and the premises shall not be damaged. If the original condition is not restored by Party B within 15 days of the above extinguishment, Party B agrees to abandon any facilities or equipment installed thereby and have the original condition restored by Party A at Party B's cost. ARTICLE 8 RESTRICTIONS ON THE USE OF THE PREMISES Party B shall use the premises with the care of a good administrator and shall not perform the following business or acts: (1) The premises shall not be used for residential, factory and kitchen purposes, and no act against sanitation, safety, public order and peace shall be committed. (2) Neither contraband shall be placed nor illegal business operated. (3) Electrical appliances of excessive voltage shall not be used or high voltage electrical facilities or neon lights shall not be installed without authorization, the original design of the electrical facilities or lines shall not be altered. (4) Operation, experimentation or storage of dangerous goods is not allowed on the premises; no such goods or weapons shall be allowed on the premises. (5) The lessee shall not stick or hang any advertisements or signboards on the outer wall or on either side of the glass panes of the premises so that the overall -3- appearance of the building will be maintained. (6) Party B shall not sublet, lend, offer or provide in any disguised manner for use the premises of parking spots in part or in whole to a third party except a branch company or an affiliate of Party B acknowledged by Party A. ARTICLE 9 DAMAGES Party B shall preserve intact the premises and common facilities and shall be responsible for repair of or compensation for any damage, whether caused on purpose or cased by negligence, unless such is caused by FORCE MAJEURE such as natural disasters. If the damage is incurred by an unrelated third party, Party A shall pursue the liability for repair. ARTICLE 10 RETURN OF THE PREMISES (1) Upon the expiry of the lease or termination of the agreement, Party B shall immediately return the premises and restore them to their original condition. If it defers returning or refuse to return the premises, Party A may claim a penalty from Party B at five times the monthly rental until the premises are returned. (2) If Party B does not renew the agreement at the expiry of the term, it shall immediately vacate and return to Party A the premises and parking spots under this agreement and shall not claim relocation fee, renovation fee or other costs from Party A. (3) If the parking spots are still occupied by vehicles upon the termination of the lease, Party A may directly tow away such vehicles. The cost incurred therefrom shall be deducted from the deposit. Party A shall not be liable for damage caused to Party B's vehicles during the tow. ARTICLE 11 TERMINATION OF THE AGREEMENT BEFORE EXPIRY If either party desires to terminate the agreement before the expiry of the lease, it shall notify the other party two months in advance and seek consent from the other party and unconditionally agree for the other party to deduct half of the total deposit as termination pay. ARTICLE 12 DEFAULT If Party B is in default of any of the terms and conditions hereunder, Party A shall -4- notify Party B in writing that improvement shall be made within a prescribed period, otherwise the lease agreement shall be immediately terminated, the water and power supply originally available to Party B shall be cut off and Party B shall not be allowed to park its vehicles inside and shall pay an amount equivalent to the deposit to Party A as punitive damages. ARTICLE 13 RENTAL ADJUSTMENT Party B agrees to the right of Party A to increase the rental of the premises and parking spots at the expiry of the first year of lease, provided the adjustment shall be within 15% (inclusive of 15%) of the rental of the preceding year and the same for all units and parking spots on the same floor in order to be fair. ARTICLE 14 PRIOR NOTIFICATION OF LEASE TERM (1) Party B shall notify Party A of its desire to or not to renew the agreement after it expires two months before the expiry. If Party B desires to renew the agreement, it shall seek the consent of Party A to the lease the above notification and executes a new agreement in writing with Party A before continuing to use the premises and parking spots. (2) Notices of both parties shall be made in writing and served at the address stated herein. ARTICLE 15 Both parties shall strictly comply with the agreement and resolve any dispute through negotiation in good faith. In case of a lawsuit, both parties shall submit themselves to the sole jurisdiction of the Hsinchu District Court in the first instance. ARTICLE 16 COPIES This Agreement shall be executed in duplicate, each to be held by both parties as evidence. -5- LESSOR (PARTY A): Wu-hsiang Lin I.D. No: F105990445 Responsible person: Address 4/F, 8, Lane 10, Section 2 Minsbeng Road, Lin 17, Chich Shou Li, Panchiao, Taipei County Telephone: (035) 726-188 LESSEE (PARTY B): Novellus Systems Taiwan Uniform invoice no: 84897212 Responsible person: Tsong-hsin Chan Address: 5/F-1, 295, Section 2 Kuang Fu Road, Hsinchu Telephone: (035) 730-550 -6- LEASE AGREEMENT [Translation] This Agreement is made as of February 29, 1996 by and between Wen-yi Li (hereinafter called "Party A") and Novellus Systems Taiwan (hereinafter called "Party B") for the lease of property. ARTICLE 1 SUBJECT OF THE LEASE (1) Party A shall lease one unit of the property which it owns at S/F-1 295, Section 2 Kuang Fu Road, Hsinchu, to Party B for office use. The location is shown in the attachment and the interior is as in its current condition. The total area of lease is 82.72 pings. (2) ____parking spots numbered ___ at basement___ of the same building as the premises concerned shall be leased along with the premises for parking purposes. The location is shown in the attachment and the condition is as the current one. ARTICLE 2 TERM This Agreement shall be a term of two years from March 1, 1996 to February 28, 1998 and terminated at its expiry and shall not be renewed unless agreed to in writing by Party A. ARTICLE 3 RENTAL (1) The monthly rental of the premises of the first year shall be NT$74,448, with $900 per ping. (2) The rental of the parking spots of the first year shall be NT$__________. (3) Upon the execution of this Agreement, Party B shall issue 12 cheques as payment of the total rental of NT$893,376 to Party A. Each period of rental payment shall comprise one month. If any of the cheques is dishonored, a late charge of 1% of the monthly rental due shall be payable to Party A for each day the cheque is dishonored. If the honoring of the cheque is delayed for up to ten days, Party A may terminate the Agreement and discontinue the water and power supply of the premises, in which case Party B shall have no objection and shall immediately vacate the premises and pay off the outstanding rental, -7- late charge, other fees due and compensation for Party A's losses. ARTICLE 4 DEPOSIT (1) Party B shall pay a deposit of NT$223,344 to Party A upon the execution of the Agreement. Any deposit left after Party B vacates and returns the premises and after any outstanding rental and payment for damage to the premises or payment due form Party B pursuant to the Agreement but not paid is deducted at the expiry of the lease shall be refunded to Party B free of interest. (2) Party B shall neither claim to pay the rental with the deposit nor use the receipt of the deposit as guarantee of any liability during the lease. ARTICLE 5 COMMON LAND AND FACILITIES (1) Common land and facilities shall include passageways, lift lobby, stairwells, lavatories, kitchen and electricity room of the building. (2) Party A shall have free access to the above area and may use the above facilities, provided it shall not place objects, install additional residential facilities or perform any act that impedes the common use of such area and facilities. (3) Party B shall be liable for any damage incurred from its improper use of the common area and facilities. (4) Party B shall apply to the Directorate General of Telecommunications for connection of telephone lines at its own cost using the lines and sockets preinstalled by Party A. (5) Party B shall comply with regulations pertaining to the use of the premises and parking spots such as Residents' Convention or Building Management Regulations. ARTICLE 6 WATER AND ELECTRICITY BILLS, TAX AND MANAGEMENT FEE (1) During the lease, Party B shall bear the water and electricity bills, telephone bills, common facilities cost, business tax and other costs incurred from use of the premises by the lease. (2) The property tax and income tax on the lease shall be borne by Party A. -8- (3) Party B shall pay a management fee to the management committee of the building on schedule. (4) Upon the execution of the agreement, Party A shall collect and deliver a total management fund of $12,408, with $150 per ping, to the management committee of the Empire Trade Building as working fund for the management of the building, and shall return such fund to Party B free of interest upon Party B's vacating the premises. ARTICLE 7 DECORATION AND RENOVATION If it is necessary for Party B to install facilities or production equipment within the premises, it shall obtain the prior written consent of Party A, provided the structure of the construction shall not be affected. All costs incurred shall be borne by Party B. Upon the extinguishment of the lease, the original condition shall be borne by Party B. Upon the extinguishment of the lease, the original condition shall be restored by Party B except for items accepted by Party A, and the premises shall not be damaged. If the original condition is not restored by Party B within 15 days of the above extinguishment, Party B agrees to abandon any facilities or equipment installed thereby and have the original condition restored by Party A at Party B's cost. ARTICLE 8 RESTRICTIONS ON THE USE OF THE PREMISES Party B shall use the premises with the care of a good administrator and shall not perform the following business or acts: (1) The premises shall not be used for residential, factory and kitchen purposes, and no act against sanitation, safety, public order and peace shall be committed. (2) Neither contrabands shall be placed nor illegal business operated. (3) Electrical appliances of excessive voltage shall not be used or high voltage electrical facilities or neon lights shall not be installed without authorization the original design of the electrical facilities or lines shall not be altered. (4) Operation, experimentation or storage of dangerous goods is not allowed on the premises; no such goods or weapons shall be allowed on the premises. (5) The lessee shall not stick or hang any advertisements or signboards on the outer wall or on either side of the glass panes of the premises so that the overall appearance of the building will be maintained. -9- (6) Party B shall not sublet, lend, offer or provide in any disguised manner for use the premises or parking spots in part or in whole to a third party except a branch company or an affiliate of Party B acknowledged by Party A. ARTICLE 9 DAMAGES Party B shall preserve intact the premises and common facilities and shall be responsible for repair of or compensation for any damage, whether caused on purpose or caused by negligence, unless such is caused by FORCE MAJEURE such as natural disasters. If the damage is incurred by an unrelated third party, Party A shall pursue the liability for repair. ARTICLE 10 RETURN OF THE PREMISES (1) Upon the expiry of the lease or termination of the agreement, Party B shall immediately return the premises and restore them to their original condition. If it defers returning or refuse to return the premises, Party A may claim a penalty from Party B at five times the monthly rental until the premises are returned. (2) If Party B does not renew the agreement at the expiry of the term, it shall immediately vacate and return to Party A the premises and parking spots under this agreement and shall not claim relocation fee, renovation fee or other costs from Party A. (3) If the parking spots are still occupied by vehicles upon the termination of the lease, Party A may directly tow away such vehicles. The cost incurred therefrom shall be deducted from the deposit. Party A shall not be liable for damage caused to Party B's vehicles during the tow. ARTICLE 11 TERMINATION OF THE AGREEMENT BEFORE EXPIRY If either party desires to terminate the agreement before the expiry of the lease, it shall notify the other party two months in advance and seek consent from the other party and unconditionally agree for the other party to deduct half of the total deposit as termination pay. ARTICLE 12 DEFAULT If Party B is in default of any of the terms and conditions hereunder, Party A shall notify Party B in writing that improvement shall be made within a prescribed period, otherwise the lease agreement shall be immediately terminated, the water and power -10- supply originally available to Party B shall be cut off and Party B shall not be allowed to park its vehicles inside and shall pay an amount equivalent to the deposit to Party A as punitive damages. ARTICLE 13 RENTAL ADJUSTMENT Party B agrees to the right of Party A to increase the rental of the premises and parking spots at the expiry of the first year of lease, provided the adjustment shall be within 15% (inclusive of 15%) of the rental of the preceding year and the same for all units and parking spots on the same floor in order to be fair. ARTICLE 14 PRIOR NOTIFICATION OF LEASE TERM (1) Party B shall notify Party A of its desire to or not to renew the agreement after it expires two months before the expiry. If Party B desires to renew the agreement, it shall seek the consent of Party A to the lease the above notification and executes a new agreement in writing with Party A before continuing to use the premises and parking spots. (2) Notices of both parties shall be made in writing and served at the address stated herein. ARTICLE 15 Both parties shall strictly comply with the agreement and resolve any dispute through negotiation in good faith. In case of a lawsuit, both parties shall submit themselves to the sole jurisdiction of the Hsinchu District Court in the first instance. ARTICLE 16 COPIES This Agreement shall be executed in duplicate, each to be held by both parties as evidence. -11- LESSOR (PARTY A): Wen-yi Li I.D. No: F121358276 Responsible person: Address 42-2, Lane 285, Section 1 Wenhua Road, Lin 7, Kungkuan Li, Panchiao, Taipei County Telephone: (035) 726-188 LESSEE (PARTY B): Novellus Systems Taiwan Uniform invoice no: 84897212 Responsible person: Tsong-hsin Chan Address: 5/F-1, 295, Section 2 Kuang Fu Road, Hsinchu Telephone: (035) 730-550 -12- EX-10.56 18 EXHIBIT 10.56 DISTRIBUTION AGREEMENT This Agreement, made and entered into this 1st day of January, 1996 by and between NOVELLUS SYSTEMS, INC. having its principal place of business at 3970 North First Street, San Jose, California 95134, U.S.A. (hereinafter referred to as "Manufacturer") and SEKI TECHNOTRON CORPORATION, having its principal place of business at 5-6-30, Kiba, Koto-ku, Tokyo 135, Japan (hereinafter referred to as "Distributor"). WITNESSETH: WHEREAS, Manufacturer is engaged in the business of the manufacture of various equipment including the Product hereinafter defined and WHEREAS, Distributor is engaged in the business of the sales, service and marketing of merchandise, and WHEREAS, Distributor is desirous of being appointed exclusive distributor for all customers except for the customers assigned to Nippon Novellus (see Exhibit "A") for all Novellus Systems, Inc. CVD products in the Territory hereinafter defined. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Manufacturer and Distributor do hereby agree to the terms and conditions set forth below. 1. DISTRIBUTORSHIP, PRODUCTS AND TERRITORY 1.01 EXCLUSIVE DISTRIBUTORSHIP - Manufacturer hereby grants to Distributor during the term of this Agreement the exclusive right to sell and service all Products in the Territory to all accounts except those specified in Exhibit "A" in accordance with the terms and conditions herein set forth. All inquiries and/or orders received by Manufacturer from Distributor's customers within the Territory or for delivery in the Territory to such customers shall be transmitted to Distributor for handling. 1.02 PRODUCTS - The term Products as used herein shall refer to all CVD products manufactured by Novellus Systems, Inc., including parts hereof, as well as all accessories, attachments, spare parts and renewal parts therefore. Manufacturer shall have the right to modify, alter, improve, change or discontinue any or all of the Products covered by this Agreement upon thirty (30) days notice to Distributor. In the event Manufacturer manufactures any new or additional Products similar to or related to the Products hereunder, said Products, shall be added to the Products covered by the Agreement as long as there is no conflict of Distributors Product line. 1.03 TERRITORY - Territory as used herein shall mean the Country of Japan. 2. ORDERS AND SHIPMENT 2.01 Distributor may place orders through its subsidiary SEOCAL, 361 Lytton Avenue, Palo Alto, CA 94301-1431 for the Products with Manufacturer. Distributor shall set forth the quantity of Products, the specifications therefor, and the desired delivery date. Manufacturer, after its acceptance of the purchase order, shall sell the Products to Distributor for resale in the Territory. Manufacturers subsidiary (Nippon Novellus) shall place orders directly with Manufacturer without involvement of Distributor. 2.02 The products sold to Distributor by Manufacturer shall be shipped FOB Destination to the destination in the territory designated in the purchase order ("Destination") (i.e., title shall pass at Destination), unless otherwise agreed to by the parties. Manufacturer shall bear risk of loss for the products until delivery to Distributor at Destination. Manufacturer will pay all freight charges to Destination and invoice such charges to Distributor, however Distributor's subsidiary SEOCAL reserves the right to designate the freight company to be used by Manufacturer. Distributor will take delivery at Destination and be responsible for clearing the products through customs, and for all customs and other fees. The parties hereto agree to cooperate for purposes of obtaining all necessary export licenses and complying with U.S. export laws. 2.03 Manufacturer and Distributor agree that an order for Manufacturer's Product(s), that is designated as a Distributor's customer, can be accepted by Manufacturer from a customer in the Territory that is tied to a Volume Pricing Agreement negotiated by the Manufacturer. Manufacturer agrees to pay Distributor a sales commission of 5% and a service commission of 7% of the U.S. list price in lieu of Distributor acting in their normal distribution role, assuming Distributor has participated in the selling process and will be servicing the system during start up and the warranty period. 2.04 When Manufacturer's sales and marketing personnel assigned to its Japanese subsidiary perform the selling and servicing function at specifically identified accounts (see Exhibit "A") its subsidiary, Nippon Novellus, will bill directly to customers that which it sells and services. 2.05 Distributor agrees to service the Products sold by it, unless any of Distributor's accounts are transferred to Manufacturer, or Manufacturer's designee, by mutual agreement of the parties hereto. In addition, upon the mutual agreement of the parties hereto, Distributor may service accounts other than Distributor's accounts. Any accounts transferred under service contract or warranty will carry a prorated portion of that service with the new servicing party. 2.06 When Manufacturer's personnel assigned to its Japanese subsidiary perform the servicing function and Distributor's personnel perform the selling function for those accounts specifically identified in the Exhibit "A", Distributor will be responsible for Japanese customer engineering special modification and system installation, Manufacturer will be responsible for servicing the system once the system has been accepted by the customer, and Distributor will forfeit its 7% service commission. 2.07 Following accounts transfer (see Exhibit "A") Manufacturer agrees that Nippon Novellus serves during start up and the warranty period on all systems Distributor sold to the customers transferred. For those systems serviced by Nippon Novellus for which a service commission (6%; 7% less 1% for installation) has been paid to Distributor, Distributor will pay to Nippon Novellus a rebate. The rebate will be calculated by taking the number of months for which Nippon Novellus has assumed the warranty obligation divided by the warranty period (24 months) and multiply by the amount of the commission. 3. PRICING AND TERMS OF PAYMENT 3.01 SALES PRICES - Attached hereto and made a part hereof as Exhibit "B" is Manufacturer's List Price for the Products, parts and accessories. The price to Distributor shall be eighty eight percent (88%) of the U.S. Domestic List Price at any given point in time unless otherwise covered by another provision of this Agreement. Said prices shall be subject to change by Manufacturer from time to time by 3 months prior written notice to Distributor; provided however, that no such 2 price increase shall affect purchase orders accepted by Manufacturer prior to notification of Distributor of the price change by Manufacturer. This price shall cover Distributor's sales and service of the Product. 3.02 TERMS OF PAYMENT - Unless otherwise agreed by the parties, payment shall be made by Distributor separately for each shipment per purchase order accepted by Manufacturer. Unless otherwise agreed by the parties, payment by Distributor to Manufacturer for Products shall be made in full net forty-five (45) days from shipment date. 3.03 CURRENCY - Currency for payments covered by this Agreement shall be U.S. Dollars. 4. MARKETING AND ADVERTISING 4.01 DISTRIBUTOR'S UNDERTAKING - Distributor shall exert its best efforts to vigorously promote the sale of Products in the Territory during the term of this Agreement and to develop a market demand for the same in the Territory. Distributor shall advertise the Products throughout the Territory in appropriate advertising media and in a manner insuring proper and adequate publicity for the Products. Distributor shall maintain a sales and service organization which can be best utilized for the promotion of the sales of the Product, that is appropriate to the customer base serviced by Distributor. Given reasonable notice from Manufacturer or its Japanese subsidiary, Nippon Novellus, Distributor shall arrange joint customer visits. Manufacturer or its subsidiary, Nippon Novellus, has the right to independently arrange customer visits, with prior notification to the Distributor, that may not include representatives of Distributor. Distributor shall not, without prior written consent of Manufacturer, manufacture, sell, distribute or otherwise handle products which, in the opinion of Manufacturer, are similar to or competitive with the Products of Manufacturer. Failure to comply with the foregoing provision will subject this Agreement to immediate termination. Distributor shall not, without prior knowledge, approval and written consent of Manufacturer, design or cause to be installed any modification or change to the system hardware, software or process in part or whole. Distributor shall not utilize or transfer Manufacturer's process techniques or technologies to equipment or systems other than those supplied by Manufacturer. Distributor shall send at the Distributor's expense appropriate personnel to required sales and service meetings scheduled by Manufacturer and shall dispatch designated personnel to Manufacturer's plant for specific Product and service training as is deemed necessary to properly execute the sales and service functions envisioned in the Agreement. Distributor shall arrange customer visits to Manufacturer's facilities, provided Distributor has given Manufacturer adequate notice thereof and Manufacturer has consented to any such visit. 4.02 SPARE PARTS - Distributor shall stock spare parts commensurate with the number of systems both in and out of warranty installed by Distributor in the Territory. Parts will be purchased from Manufacturer's subsidiary (Nippon Novellus). If Manufacturer discontinues or obsoletes any part, then Distributor may return the discontinued or obsolete parts purchased from Manufacturer or its subsidiary for credit in the amount of one hundred (100%) percent of invoiced amount. If Distributor does not elect to purchase replacements for any such obsolete parts, then Distributor will receive a credit equal to 80% of the invoiced amount for any such obsolete invoiced parts 3 against amounts thereafter payable to Novellus hereunder for other spare parts and Products. Parts on consignment will be ordered from Manufacturer's subsidiary and shipped upon completion of a mutually acceptable consignment agreement between Distributor and Manufacturer's subsidiary. 4.03 TERRITORY DEMONSTRATION CENTER - Manufacturer's subsidiary (Nippon Novellus), shall provide process demonstration facilities including, but not limited to, fully functional system, test and evaluation equipment, trained personnel and consumable items. For such services, Distributor shall pay Nippon Novellus an annual retainer and a fee for each Demo. ANNUAL RETAINER- Distributor will pay to Nippon Novellus an annual retainer fee for 1996 of $300,000 by January 31, 1996. For years subsequent to 1996, the annual retainer fee will be calculated by taking the prior years fee and adding an amount equal to the prior years fee, times the inflation rate announced by the Japanese Government for the prior year. Such fee will be invoiced by Nippon Novellus when the inflation rate is announced, and payable by Distributor upon receipt of invoice. DEMO FEE - Distributor shall pay a fee for each demo. Nippon Novellus will provide a quote for the fee to Distributor based on estimated material and labor hours required to complete the demo. 4.04 FAIRS AND EXHIBITIONS - Distributor agrees to participate in appropriate industry exhibitions to exploit Product in the Territory. The cost of the exhibitions and displays and the responsibility therefor shall be borne by the Distributor. If Manufacturer and Distributor have a booth together then they will negotiate a reasonable fee to be paid by each party. 4.05 SERVICE PERSONNEL - Distributor shall maintain sufficient service personnel as is necessary to properly perform the service and support functions required for the installed systems. Distributor agrees to provide Manufacturer with personnel plan for satisfying the service requirements for installed systems during the term of this Agreement. The parties agree that one field engineer for every three Concept One systems in warranty and one field engineer for every five Concept One systems not in warranty will provide sufficient personnel to service Concept One installed systems. The parties also agree that one field engineer for every Concept Two system in warranty will provide sufficient personnel to service Concept Two installed systems. 4.06 DISTRIBUTOR'S GOAL - Distributor agrees that goals will be set mutually by Manufacturer and Distributor yearly. The goals for calendar year 1995 through 1999 will be established by Manufacturer and Distributor in January of each respective year. 4.07 PERFORMANCE EVALUATION - Manufacturer will conduct semiannual performance evaluations of Distributor based upon Manufacturer's review of major accounts, including MEC and Fujitsu. The criteria of this performance evaluation will follow the guidelines as provided by manufacturer and will include without limitation, criteria such as the adequacy of personnel training, the level of service and support provided to customers and the accomplishment of the goals as set forth in Section 4.06. The criteria will be jointly established by Distributor and Manufacturer on January of each year, and the performance evaluations based on the established criteria will be conducted the following July and January. In the event Manufacturer, in its sole discretion, determines as a result of any performance evaluation that Distributor has not met the established criteria, Manufacturer shall have the right to transfer the accounts not meeting this criteria to Nippon Novellus earlier than the original schedule. 4 5. CONFIDENTIALITY OF INFORMATION AND MATERIALS Distributor agrees to use best efforts to hold in strict confidence and not to disclose to others or use, either before or after termination of the Agreement, any technical or business information, manufacturing technique, process experimental work, trade secret or other confidential matter relating to Products. Distributor shall, upon request (and upon termination of this Agreement without request), deliver to Manufacturer any and all drawings, notes, documents and materials received from Manufacturer or developed in conjunction with the sale or service of Products. 6. WARRANTY 6.01 Manufacturer warrant that the Product shall be free from defect in design, materials and workmanship for a period of twenty-four (24) months from the date of delivery to the site of the customer subject to Section 6.02. Manufacturer shall supply Distributor free of charge, replacement parts necessary for the warranty servicing performed by Distributor. If Manufacturer requests return of defective goods subject to Section 6.02, Manufacturer shall pay all transportation charges for the return of defective goods and all transportation and customs clearance charges for the replacement of goods. 6.02 LIMITATION. MANUFACTURER'S LIABILITY UNDER THE WARRANTY SET FORTH IN THIS SECTION 6 SHALL BE LIMITED TO EITHER (AT MANUFACTURER'S OPTION) A REFUND OF THE CUSTOMER'S PURCHASE PRICE OR THE REPLACEMENT OF DEFECTIVE GOODS. IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR THE COST OF PROCUREMENT OF SUBSTITUTED GOODS BY THE CUSTOMER OR FOR ANY SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES FOR BREACH OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH IN THIS SECTION 6, MANUFACTURER GRANTS NO OTHER WARRANTIES, AND EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, REGARDING THE PRODUCTS, THEIR FITNESS FOR ANY PURPOSE, THEIR QUALITY, THEIR MERCHANTABILITY, OR OTHERWISE. Distributor is responsible for maintaining an inventory of consigned warranty parts and to pay for any reported shortages. As defined in the Consigned Inventory Agreement executed in connection herewith, Distributor shall report to Manufacturer monthly on the inventory of consigned warranty parts. 7. PRODUCTS LIABILITY Manufacturer shall maintain at all times during the effective term of the Agreement at its own expense product liability insurance providing limits of not less than $1,000,000 per person and not less than $2,000,000 per occurrence on all Products sold under this Agreement. All such insurance policies shall designate Distributor as an additional insured, or such policies shall contain coverage protecting Distributor as a vendor of the products. Manufacturer shall furnish Distributor with satisfactory evidence of such insurance coverage. Furthermore, Manufacturer shall indemnify Distributor from any and all damages, expenses and obligations which Distributor may incur or sustain by reason of the purchase or sale of any defective Products, except as to the extent that the defect is attributable to modifications made by the Distributor. 5 8. REPORTS Distributor agrees to furnish to Manufacturer monthly reports regarding sales to customers, lost business reports, forecasts of future sales to prospective customers in the Territory, and competitive information. Distributor also agrees to furnish every Friday a brief weekly status report on sales and support activities so Manufacturer can have a sense of the market and how well Distributor is achieving the sales objectives mutually set forth. 9. INTELLECTUAL PROPERTY 9.01 USE OF NAME - Manufacturer agrees that Distributor may, during the term of this Agreement, use all trademarks, the name of the Products, and the term "Exclusive Distributor in Japan for Manufacturer" in advertising and promotional materials only in connection with sales of Products to Distributor's customers in accordance with the terms set forth herein. The Products are offered for sale and are sold by Manufacturer subject in every case to the condition that such sale does not convey any license express or implied, to manufacturer, duplicate or otherwise copy or reproduce any of the Products or any part thereof. Distributor shall take appropriate steps with its customers to inform them of and to assure compliance with the restrictions contained in this Section 9.01. Distributor agrees that Manufacturer owns all right, title, and interest in the product lines that include the Products and in all of Manufacturer's patents, designs, copyrights, trademarks, trade names, inventions, know-how, and trade secrets except the matters known to the public relating to the design, manufacture, operation and service of the Products. The use by Distributor of any of the property rights described in this Section 9.01 is authorized only for the purposes and during the period set forth herein. Manufacturer further agrees that after termination or the expiration of this Agreement, Distributor may use Manufacturer's trademarks in connection with the sale of its remaining inventory of Products for a period not to exceed one (1) year from the date of termination or expiration of this Agreement so long as such termination is not as a result of any default by Distributor in its performance hereunder. 9.02 INDEMNIFICATION - In the event Distributor or its customer is served with notice of alleged infringement of any patents, designs, copyrights and trademarks arising from the sale of any of the Products, Manufacturer shall, indemnify Distributor or such customer on the terms set forth in this Section 9.02. Distributor agrees that Manufacturer has the right to defend or at its option to settle, and Manufacturer agrees, at its own expense, to defend or at its option to settle, any action, claim, suit or proceeding brought against Distributor or its customer on the issue of infringement of any United States or Japanese patent, copyright, or trademark by the Products sold hereunder or the use thereof, subject to the limitations hereinafter set forth. Manufacturer shall have sole control of any such action, claim, suit or proceeding and settlement negotiations relating thereto, and Manufacturer agrees to pay subject to the limitations hereinafter set forth, any final judgment entered against Distributor or its customer on such issue in any claim action, claim suit or proceeding defended by Manufacturer. Distributor agrees that Manufacturer at its sole option shall be relieved of the foregoing obligations unless Distributor or its customer notifies Manufacturer promptly in writing of such action, claim, suit or proceeding and gives Manufacturer authority to proceed as contemplated herein, and, at Manufacturer's expense, gives Manufacturer proper and full information and assistance to settle and/or defend any such action, claim, suit or proceeding. If the Products, or any part thereof, are, or in the opinion of Manufacturer may become, the subject of any claim, action, suit or proceeding for infringement of any United States or Japanese patent, copyright or trademark, or it is adjudicatively determined that the Products, or any part thereof, infringe any Untied States or Japanese patent, copyright or trademark, or if the sale or use of the Products, or any part thereof, is, as a result, 6 enjoined, then Manufacturer may, at its option and expense either: (i) procure for Distributor and its customers the right under such patent, copyright or trademark to sell or use, as appropriate, the Products or such part thereof; or (ii) replace the Products, or part thereof, with other suitable Products or parts; or (iii) suitably modify the Products, or part thereof; or (iv) if the use of the Products, or part thereof, is prevented by injunction, remove the Products, or part thereof, and refund the aggregate payments paid thereof by Distributor's customer, less a reasonable sum for use and damage. Manufacturer shall not be liable for any costs or expenses incurred without its prior written authorization. Notwithstanding the foregoing, Manufacturer assumes no liability for (i) infringements covering completed equipment or any combination, method or process in which any of the Products or parts thereof may be used but not covering the Products or parts thereof when used alone; (ii) trademark infringements involving any marking or branding not applied by manufacturer or involving any marking or branding applied at the request of Distributor; or (iii) infringements involving the modification or servicing of the Products, or any part thereof, unless such modification or servicing was performed by Manufacturer. The foregoing provisions of this Section 9.02 state the entire liability and obligation of Manufacturer and the exclusive remedy of Distributor and its customers, with respect to any alleged infringement of patents, copyrights, trademarks or other intellectual property rights by the Products or any part thereof. 10. RELATIONSHIP OF PARTIES The relationship between Manufacturer and Distributor shall not be that of a principal and an agent, but shall be that of a seller and purchaser, each acting as an independent contractor. Distributor shall have no right or authority to (and shall not) incur, assume or create, in writing or otherwise, any warranty, liability, or obligation of any kind, express or implied, in the name of or on behalf of Manufacturer. All sales and other agreements between Distributor and its customers are Distributor's exclusive responsibility. 11. OTHER PROVISIONS 11.01 When Seki requests technical assistance of Novellus or Nippon Novellus the engineer must follow Seki's direction at that account. 11.02 In this regard, Novellus, Nippon Novellus and Seki agree not to hire each other's employees without full mutual agreement. 12. ASSIGNMENT Neither party shall assign or transfer any of its rights or obligations under this Agreement in whole or in part to any individual, firm or corporation without the prior written consent of the other party. 13. TERM OF AGREEMENT 13.01 TERM AND RENEWAL - This Agreement becomes effective on the date mentioned above and remains in effect until December 31, 1999. Either party shall have the right thereafter to terminate this Agreement on ninety (90) days notice to the other party. 7 13.02 TERMINATION PROTECTION - In the event of termination of this Agreement, (i) all Distributor backlog at the time of termination shall ship per the terms of this Agreement and (ii) Manufacturer shall pay to Distributor a sales commission rate of 5% of the net invoice price at the shipment date for each system in the backlog and (iii) Distributor shall service all systems during start up and the warranty period on all backlog orders at the time of termination and (iv) Manufacturer shall pay to Distributor a service commission rate of 7% of the net invoice price for start up and warranty services at the shipment date for each system in the backlog. Upon request of Distributor, Manufacturer may repurchase after the termination of the Agreement, all products including demonstration units in hands of Distributor with good condition at the price equal to that paid by Distributor for the inventory and at the depreciated price for the demonstration units. 13.03 LIMITATION ON LIABILITY - Except as otherwise expressly provided herein, in the event of termination by either party in accordance with any of the provisions of this Agreement, neither party shall be liable to the other, because of such termination, for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, investments, leases or commitments in connection with the business or goodwill of Manufacturer or Distributor. Termination shall not, however, relieve either party of obligations incurred on or prior to the date of termination. 14. EVENTS OF TERMINATION 14.01 In addition to the right of termination set forth in paragraph 13.01, either party may terminate this agreement as follows: 14.011 BANKRUPTCY, ETC. - By either party immediately and without prior written notice to the other party in the event that proceedings in bankruptcy or insolvency are instituted by or against the other party, or a receiver is appointed, or if any substantial part of the assets of the other party is the object of attachment, sequestration or other type of comparable proceeding, and such proceeding is not vacated or terminated within thirty (30) days after its commencement or institution. 14.012 DEFAULT - By either party immediately if one party defaults in the performance of any of the provisions of this Agreement and does not cure the default within thirty (30) days after receipt of written notice given by the other party. 14.013 LICENSES - By either party immediately if either party is unable to obtain or renew any permit, license, patent or other governmental approval necessary to carry on the business contemplated under this Agreement. 14.02 LIMITATION ON TERMINATION RIGHTS - The parties hereto expressly agree that none of the rights set forth in the second paragraph of Section 13.02 shall apply to a termination pursuant to this Section 14. 14.03 SURVIVAL - In the event of a termination pursuant to Section 13 or this Section 14, Section 3.01 (Sales Prices), 3.03 (Terms of Payment, 5 (Confidentiality, 6 (Warranty), 9 (Intellectual Property), 10 (Relationship of Parties), 13 (Term), 14 (Events of Termination), 16 (Export-Import Laws), 17 (Limitation of Liability), 18 (Governing Law) and 19 (Arbitration) shall 8 survive such termination for a period of three (3) years, and for a period of ten (10) years on Section 7 (Products Liability) after termination of this agreement. 15. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous negotiations, agreements and commitments in respect thereto, and shall not be released, discharged, changed or modified in any manner, except by instruments signed by duly authorized officers or representative of each of the parties hereto. Notwithstanding the foregoing, the parties intend the agreement between them in effect prior to the commencement of the term of this Agreement to continue to apply to define the rights and obligations of the parties with respect to all sales made prior to the commencement date of this Agreement. 16. EXPORT-IMPORT LAWS - Distributor shall, at its own expense, pay all import and export licenses and permits and take all other actions required to accomplish the export and import of the Products purchased by Distributor. Distributor understands the Manufacturer is subject to regulation by agencies of the U.S. Government, including the U.S. Department of Commerce, which prohibit export or diversion of certain technical products to certain countries. Distributor warrants that it will comply in all respects with the export and re-export restrictions set forth in the export license for every Product shipped to Distributor or its customers. 17. LIMITATION ON LIABILITY MANUFACTURER'S LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR SALE OF THE PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY THE CUSTOMER FOR THE PRODUCTS. IN NO EVENT SHALL MANUFACTURER BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSE, ON ANY THEORY OF LIABILITY. 18. GOVERNING LAW The validity and interpretation of the Agreement and of each clause and part thereof shall be governed by the laws of the State of California. 19. ARBITRATION Any controversy arising between the parties in connection with this Agreement, which cannot be amicably settled by the parties, shall be referred to arbitration in accordance with the Agreement between the Japan Commercial Arbitration Association and the American Arbitration Association to facilitate the Use of Commercial Arbitration in Trade between Japan and the United States of America dated September 16, 1952 and the decision of such arbitration proceeding shall be binding and conclusive upon the parties hereto. Arbitration shall be conducted in California if Distributor demands arbitration, and in Tokyo, Japan if Manufacturer demands arbitration. The expense of any such arbitration shall be decided as part of the arbitration settlement. 9 20. SEPARABILITY OF PROVISIONS A judicial or administrative declaration in any jurisdiction on the invalidity of any one or more of the provisions hereof shall not invalidate the remaining provisions of this Agreement in that jurisdiction, nor shall such declaration have any effect on the validity or interpretation of the Agreement outside of that jurisdiction. 21. WAIVER OF COMPLIANCE Any failure by any party hereto to enforce at any time any term or condition under this Agreement shall not be considered a waiver of that party's rights thereafter to enforce each and every term and condition of the Agreement. 22. NOTICES All notices and other communication in connection with this Agreement shall be in writing and shall be sent to the respective parties at the following addresses, or to such other addresses as may be designated by the parties in writing from time to time by registered or certified mail or facsimile: TO MANUFACTURER: NOVELLUS SYSTEMS, INC. 3970 NORTH FIRST STREET SAN JOSE, CA 95134 U.S.A. TO DISTRIBUTOR: SEKI TECHNOTRON CORPORATION 5-6-30 KIBA, KOTO-KU TOKYO 135 JAPAN In WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized representative. /s/Peter Hanley ----------------------------------------------------------- MANUFACTURER: NOVELLUS SYSTEMS, INC. Name: Peter Hanley Title: Executive Vice President, Sales and Marketing Date: February 1, 1996 /s/ Shu Seki ----------------------------------------------------------- DISTRIBUTOR: SEKI TECHNOTRON CORPORATION Name: Shu Seki Title: President Date: February 1, 1996 ----------------------------------------------------------- 10 EXHIBIT "A" Nippon Novellus shall assume the service and sales responsibilities from Seki Technotron Corporation for the accounts and upon the dates specified below: ACCOUNTS SERVICE TRANSFER* SALES TRANSFER* -------- ----------------- --------------- Sony 6/1995 1/1996 Fujitsu 6/1999 1/2000 MEC 6/1999 1/2000** NSI 6/1996 1/1997 Nittetsu 6/1997 1/1998 Rohm 6/1997 1/1998 Yamaha 6/1999 1/2000 All Others 6/1999 1/2000 *Determination of the exact date of the transfer will be coordinated between the appropriate sales or service group of Distributor and Manufacturer based upon the circumstances existing at that time. Manufacturer reserves the right to transfer any of these accounts at an earlier date if Distributor's performance does not meet the criteria set forth under Section 4.07 of the Distribution Agreement. **Distributor must increase sales for this account either directly or indirectly by furnishing sales information and coordination to Novellus in order for Novellus to book orders outside territory. In the event sales for this account do not increase year over year, Novellus maintains the right to accelerate transition of this account. 11 EX-13.1 19 EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL DATA - ----------------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Income Data: Net sales $373,732 $224,679 $113,543 $69,800 $80,014 Gross profit 216,147 128,453 64,479 38,907 47,419 Net income 82,543 44,932 16,115 6,240 16,777 Net income per share $ 4.82 $ 2.72 $ 1.10 $ 0.44 $ 1.15 Shares used in per share calculations 17,137 16,495 14,670 14,342 14,546
(IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheets Data: Cash, cash equivalents, and short-term investments $149,799 $136,539 $ 48,622 $ 42,988 $ 40,542 Working capital 226,257 183,581 83,486 65,276 66,566 Total assets 364,688 265,000 113,117 97,334 94,654 Long-term obligations, excluding current portions - - - 763 985 Shareholders' equity 272,782 214,214 105,461 82,681 80,897 Cash dividends per share - - - - -
17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS NET SALES Net sales were $373,732,000, $224,679,000 and $113,543,000 in 1995, 1994, and 1993 respectively. The increases of 66.3% from 1994 to 1995 and 97.9% from 1993 to 1994 were caused by continued robust worldwide demand for semiconductor equipment. resulting in significant growth in all product lines. Growth was particularly strong in our Concept Two products, which are continuing to penetrate key accounts and state-of-the-art wafer fabrication facilities throughout the world. Approximately 78.4% and 80.4% of the sales growth in 1995 and 1994 was due to increased shipments and approximately 21.6% and 19.6% in 1995 and 1994 was due to higher average unit prices. The higher average unit prices were primarily caused by an increased proportion of sales coming from the higher priced Concept Two product lines. International sales, which include sales by the Company's Japanese subsidiary were 54.4%, 53.6%, and 43.6% of total sales in 1995, 1994, and 1993, respectively. Strong demand in the Far East was the primary cause of the increases in international sales. The Company expects international sales to continue to represent a significant portion of its overall net sales. GROSS PROFIT Gross profit was $216,147,000, $128,453,000 and $64,479,000 in 1995, 1994, and 1993, respectively. The increases were due to the higher net sales. As a percentage of net sales, gross profit was 57.8%, 57.2%, and 56.8% in 1995, 1994, and 1993, respectively. The increases in gross profit as a percentage of net sales were primarily due to increased manufacturing efficiencies and material cost reductions on our Concept Two product line, as well as overall efficiencies and lower fixed costs per system due to the higher volume of systems manufactured and shipped each year as compared to the prior year. RESEARCH AND DEVELOPMENT Research and development expenses were $41,009,000, $26,012,000, and $16,860,000 in 1995, 1994, and 1993, respectively. The increases were due to continued increased spending on new product development. As a percentage of net sales, research and development expenses were 11.0%, 11.6%, and 14.8% in 1995, 1994, and 1993, respectively, as sales grew faster than the spending increases. The Company plans to continue to invest in new products and increase research and development spending in absolute dollars. SELLING, GENERAL, AND ADMINISTRATIVE Selling, general, and administrative expenses were $59,347,000, $38,744,000, and $24,263,000 in 1995, 1994, and 1993, respectively. As a percentage of net sales, selling, general, and administrative expenses were 15.9%, 17.2%, and 21.4%, respectively. The Company has invested in personnel, facilities, and other infrastructure to support the rapidly growing sales, particularly in the Far East. Gross profit, research and development expenses, and selling, general, and administrative expenses were affected throughout the periods indicated by changes in expenses for the Company's bonus program. Amounts charged for bonuses in 1995, 1994, and 1993 were $8,418,000, $6,247,000 and $3,047,000, respectively. NET INTEREST INCOME Net interest income was $9,274,000, $4,382,000, and $1,425,000 in 1995, 1994 and 1993, respectively. The increases were due to additional cash, cash equivalents, and short-term investments resulting from cash generated from operations and proceeds from the Company's common stock offering in 1994, as well as generally higher interest rates. PROVISION FOR INCOME TAXES The provision for income taxes reflects an effective tax rate of 34% in 1995 and 1994, and 35% in 1993. The decrease from 1993 to 1994 is due primarily to additional tax benefits realized by the Company's Foreign Sales Corporation. At December 31, 1995, the Company has recognized a deferred tax asset of $16,666,000 related to temporary differences between the book and tax basis of assets and liabilities. It is the opinion of management that it is more likely than not that this asset will be realized by offset against the recognized deferred tax liability of $386,000 and by carryback against previously paid income taxes. REPURCHASE OF COMMON STOCK During 1995, the Company repurchased 641,000 shares of common stock. This repurchase resulted in an increase to earnings per share for 1995 of approximately $0.02. 18 FOREIGN CURRENCY ACCOUNTING For all foreign operations except Japan, the functional currency is the U.S. Dollar. Gains or losses, which result from the process of remeasuring foreign currency financial statements into U.S. Dollars, are immaterial and included in net income except for Japan. To reflect the changing nature of the operation of the Company's Japanese subsidiary, on January 1, 1995 the Company changed the functional currency of this subsidiary to the Japanese Yen. Accordingly, translation gains and losses related to the Japan subsidiary are included as a component of shareholders' equity subsequent to January 1, 1995. FOREIGN EXCHANGE CONTRACTS The Company conducts its business in various foreign currencies. As a result, it is subject to the transaction exposures that arise from foreign exchange rate movements between the dates that foreign currency transactions are recorded (i.e., export sales) and the date they are consummated (i.e., cash receipts in foreign currencies). The Company enters into forward foreign exchange contracts primarily to hedge against the short-term impact of foreign currency fluctuations of intercompany accounts payable denominated in U.S. Dollars recorded by the Japanese subsidiary. The Company also enters into forward foreign exchange contracts to buy and sell foreign currencies as economic hedges of the Company's remaining foreign net monetary asset position where the U.S. Dollar is the functional currency. In 1995, these hedging contracts were denominated primarily in pound sterling. The maturities of all the forward foreign exchange contracts are generally short-term in nature. Because the impact of movements in currency exchange rates on forward foreign exchange contracts offsets the related impact on the underlying items being hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Net foreign currency gains and losses have not been material. OTHER ISSUES In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires recognition of impairment of long lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial condition or results of operations. The Company accounts for its stock option plans and its employee stock purchase plan in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB 25) "Accounting For Stock Issued to Employees". In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123) "Accounting for Stock Based Compensation". SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial condition or results of operations. CAUTIONARY STATEMENTS Certain of the statements contained in this annual report are forward looking statements that involve a number of risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from those described herein and include the following: MARKET RISK The Company's business depends predominantly on capital expenditures of semiconductor manufacturers, which, in turn, depend on the current and anticipated market demand for integrated circuits and products utilizing integrated circuits. The semiconductor industry has historically been very cyclical and has experienced periodic downturns, which have had a material adverse effect on the semiconductor industry's demand for semiconductor processing equipment, including equipment manufactured and marketed by the Company. No assurance can be given that the Company's net sales and operating results will not be adversely affected if downturns or slowdowns in the rate of capital investment in the semiconductor industry occur in the future. In addition the semiconductor equipment industry is highly competitive, and subject to rapid change and new products and enhancements. COMPETITION The Company faces substantial competition in each of the markets in which it sells its products. Certain of the Company's competitors are larger, and have greater resources, financial and otherwise, than the Company. There can be no assurance that the Company will be successful, or as successful as its competitors, in selecting, developing, manufacturing, and marketing its new products, or enhancing its existing products. Failure to successfully develop new products could materially adversely affect the Company's business, financial condition, and results of operations. 19 PATENTS AND PROPRIETARY RIGHTS There has also been substantial litigation regarding patent and other intellectual property rights in semiconductor related industries. The Company is currently involved in such litigation (see Note 9 to the consolidated financial statements); and, although it is not aware of any infringement by its products of any patent or proprietary rights of others, it could become involved in additional litigation in the future. Although the Company does not believe the outcome of the current litigation will have a material impact on the Company's financial condition or results of operations, no assurances can be given that this litigation or future litigation will not have such an impact. INTERNATIONAL OPERATIONS Export sales accounted for approximately 37%, 41%, and 32% of net sales in 1995, 1994, and 1993, respectively. The Company anticipates that export sales will account for a significant portion of net sales in the foreseeable future. As a result, a significant portion of the Company's sales will be subject to certain risks, including tariffs and other barriers, difficulties in staffing and managing foreign subsidiary operations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company is also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes, or other charges or restrictions will be implemented by the United States or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that any of these factors or the adoption of restrictive policies will not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, sales of systems shipped by the Company's Japanese subsidiary are denominated in Japanese Yen. The company sells the systems to its Japanese subsidiary in U.S. Dollars. It then enters into forward foreign exchange contracts to hedge against the short-term impact of foreign currency fluctuations of intercompany accounts payable denominated in U.S. Dollars recorded by the Japanese subsidiary. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations and capital resources through cash flow from operations, sale of equity securities, and borrowings. The Company's primary sources of funds at December 31, 1995 consisted of $149,799,000 of cash, cash equivalents, and short-term investments. In addition at December 31, 1995 there was $10,000,000 available under bank lines of credit that expire at various dates through April 30, 1997. At December 31, 1995 approximately $7,369,000 was outstanding under these bank lines of credit which bear interest at the banks' prime lending rates. Cash and cash equivalents increased $14,127,000 from $45,987,000 to $60,114,000 at December 31, 1995. Net cash provided by operating activities increased by $59,309,000 primarily due to net income of $82,543,000, depreciation and amortization of $7,649,000, and increases in accounts payable ($18,021,000), income taxes payable ($9,484,000), and accrued warranty ($7,001,000). These amounts were partially offset by increases in accounts receivable ($51,774,000), inventories ($12,137,000), and prepaid taxes and other current assets ($9,538,000). The increases are generally due to the higher levels of business activity in 1995 over 1994, as evidenced by the 66.3% increase in net sales. The increase in accounts receivable was affected by an increase in days sales outstanding in receivables, from 58 days at December 31, 1994 to 86 days at December 31, 1995. This increase is primarily due to the expansion of business in Japan, as receivables there typically have longer collection cycles. Inventory turnover (based on year-end balances) continued a positive trend, increasing from 3.0 turns in 1994 to 3.4 turns in 1995. In 1995, the Company used $18,997,000 of cash for investing activities, primarily for capital expenditures to increase manufacturing capacity, support new product development, and expand other facilities to support the higher levels of business activity. Net cash used for financing activities in 1995 was $26,185,000, as expenditures under the Company's common stock repurchase plan ($35,732,000) were partially offset by purchases under the stock option and employee stock repurchase plan ($6,696,000). In addition to capital expenditures, property and equipment increased approximately $2,561,000 in 1995 from the net transfer of customer evaluation units and other equipment from inventory. Approximately $3,961,000 was transferred from inventory to property and equipment and $1,400,000 was transferred from property and equipment to inventory. The transfers were made at historical cost, which was less than net realizable value. As a result, no write-down would have been required in absence of such a transfer. The Company believes that funds generated from operations, existing cash balances, and borrowing capacity will be sufficient to meet the Company's requirements through 1996. 20 STOCK INFORMATION Novellus' common stock is traded on the Nasdaq Stock Market and is quoted on the Nasdaq National Market under the symbol NVLS. The following table sets forth the high and low closing prices as reported by the Nasdaq National Market for the periods indicated:
- ------------------------------------------------------------ 1995 High Low - ------------------------------------------------------------ First Quarter $ 65 1/2 $42 3/4 Second Quarter 72 1/4 55 3/4 Third Quarter 87 1/4 66 7/8 Fourth Quarter 74 1/4 47 3/4 - ------------------------------------------------------------ 1994 High Low - ------------------------------------------------------------ First Quarter $ 45 $31 3/4 Second Quarter 38 1/4 25 3/4 Third Quarter 48 1/2 33 1/4 Fourth Quarter 56 1/2 41 3/4
The Company has not paid cash dividends on its common stock since inception, and its Board of Directors presently plans to reinvest the Company's earnings in its business. Accordingly it is anticipated that no cash dividends will be paid to holders of common stock in the foreseeable future. Additionally, certain covenants set forth in the Company's bank lines of credit limit the Company's ability to pay dividends. As of December 31, 1995 there were 591 holders of record of the Company's common stock. CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $373,732 $224,679 $113,543 Cost of sales 157,585 96,226 49,064 ---------------------------------------------------------- Gross profit 216,147 128,453 64,479 Operating expenses Research and development 41,009 26,012 16,860 Selling, general and administrative 59,347 38,744 24,263 ---------------------------------------------------------- Total operating expenses 100,356 64,756 41,123 ---------------------------------------------------------- Operating income 115,791 63,697 23,356 Interest: Income 9,501 4,670 1,531 Expense (227) (288) (106) ---------------------------------------------------------- Net interest 9,274 4,382 1,425 ---------------------------------------------------------- Income before provision for income taxes 125,065 68,079 24,781 Provision for income taxes 42,522 23,147 8,666 ---------------------------------------------------------- Net income $82,543 $44,932 $16,115 ---------------------------------------------------------- ---------------------------------------------------------- Net income per share $4.82 $2.72 $1.10 ---------------------------------------------------------- ---------------------------------------------------------- Shares used in per share calculations 17,137 16,495 14,670 ---------------------------------------------------------- ---------------------------------------------------------- SEE ACCOMPANYING NOTES.
21 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 60,114 $ 45,987 Short-term investments 89,685 90,552 Accounts receivable, net of allowance for doubtful accounts of $2,196 in 1995 and $1,761 in 1994 112,088 60,590 Inventories 36,779 27,279 Deferred taxes 16,666 8,291 Prepaid and other current assets 2,831 1,668 -------------------------------------------- Total current assets 318,163 234,367 Property and equipment: Machinery and equipment 41,916 31,261 Furniture and fixtures 2,587 1,801 Leasehold improvements 23,947 11,875 -------------------------------------------- 68,450 44,937 Less accumulated depreciation and amortization 23,745 15,528 -------------------------------------------- 44,705 29,409 Other assets 1,820 1,224 -------------------------------------------- Total assets $ 364,688 $ 265,000 -------------------------------------------- -------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current obligations under lines of credit $ 7,369 $ 4,518 Accounts payable 32,866 14,845 Accrued payroll and related expenses 15,578 10,119 Accrued warranty 15,261 8,260 Other accrued liabilities 9,580 6,979 Income taxes payable 11,252 6,065 -------------------------------------------- Total current liabilities 91,906 50,786 Commitments and contingencies Shareholders' equity: Preferred stock, no par value; 10,000 shares authorized, no shares issued and outstanding - - Common stock, no par value; 40,000 shares authorized, 15,942 issued and outstanding at December 31, 1995 (16,169 issued and outstanding at December 31, 1994) 118,423 112,532 Retained earnings 153,595 101,682 Cumulative translation adjustments 764 - -------------------------------------------- Total shareholders' equity 272,782 214,214 -------------------------------------------- -------------------------------------------- Total liabilities and shareholders' equity $ 364,688 $ 265,000 -------------------------------------------- --------------------------------------------
SEE ACCOMPANYING NOTES. 22 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows provided by operating activities: Net income $ 82,543 $ 44,932 $ 16,115 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,649 3,973 3,716 Changes in operating assets and liabilities: Accounts receivable (51,774) (24,294) (18,504) Inventories (12,137) (11,946) (6,643) Deferred taxes and prepaid and other current assets (9,538) (6,857) (824) Accounts payable 18,021 6,622 4,102 Accrued payroll and related expenses 5,459 5,852 1,781 Accrued warranty 7,001 4,860 1,470 Other accrued liabilities 2,601 4,274 953 Income taxes payable 9,484 7,244 3,497 ---------------------------------------------------------- Total adjustments (23,234) (10,272) (10,452) ---------------------------------------------------------- Net cash provided by operating activities 59,309 34,660 5,663 Cash flows from investing activities: Purchase of held-to-maturity debt securities (518,021) (128,565) (24,564) Proceeds from the sale and maturity of held-to-maturity debt securities 518,888 62,577 19,685 Capital expenditures (19,268) (6,900) (6,589) (Increase) decrease in other assets (596) 58 695 ---------------------------------------------------------- Net cash used for investing activities (18,997) (72,830) (10,773) Cash flows from financing activities: Principal payments under capital lease obligations - (38) (146) Proceeds from lines of credit 2,851 38 2,862 Payment of long-term debt - - (801) Common stock issued 6,696 60,099 4,601 Common stock repurchased (35,732) - (651) ---------------------------------------------------------- Net cash provided by (used for) financing activities (26,185) 60,099 5,865 ---------------------------------------------------------- Net increase in cash and cash equivalents 14,127 21,929 755 Cash and cash equivalents at the beginning of the period 45,987 24,058 23,303 ---------------------------------------------------------- Cash and cash equivalents at the end of the period $ 60,114 $ 45,987 $ 24,058 ---------------------------------------------------------- ---------------------------------------------------------- Supplemental disclosures: Cash paid during the year for: Interest $ 227 $ 287 $ 106 Income taxes 40,209 21,892 5,756 Other noncash changes: Income tax benefits from employee stock plans 4,297 3,722 2,715 Systems transferred from inventory to property and equipment 3,961 8,803 3,268 Systems transferred from property and equipment to inventory 1,400 3,014 1,639 Transfers of securities from held-to-maturity to available-for-sale 145,265 - -
SEE ACCOMPANYING NOTES. 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK RETAINED TRANSLATION TOTAL SHAREHOLDERS' SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 13,684 $ 41,531 $ 41,150 $ - $ 82,681 Exercise of stock options 446 3,796 - - 3,796 Shares issued under employee stock purchase plan 81 805 - - 805 Income tax benefits realized from activity in employee stock plans - 2,715 - - 2,715 Common stock repurchased (44) (136) (515) - (651) Net income - - 16,115 - 16,115 ------------------------------------------------------------------------------------ Balance at December 31, 1993 14,167 48,711 56,750 - 105,461 Exercise of stock options 456 5,213 - - 5,213 Shares issued under employee stock purchase plan 46 999 - - 999 Income tax benefits realized from activity in employee stock plans - 3,722 - - 3,722 Stock offering 1,500 53,887 - - 53,887 Net income - - 44,932 - 44,932 ------------------------------------------------------------------------------------ Balance at December 31, 1994 16,169 112,532 101,682 - 214,214 Exercise of stock options 372 5,230 - - 5,230 Shares issued under employee stock purchase plan 42 1,466 - - 1,466 Income tax benefits realized from activity in employee stock plans - 4,297 - - 4,297 Common stock repurchased (641) (5,102) (30,630) - (35,732) Cumulative translation adjustment - - - 764 764 Net income - - 82,543 - 82,543 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Balance at December 31, 1995 15,942 $ 118,423 $ 153,595 $ 764 $ 272,782 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 - -------------------------------------------------------------------------------- NOTE 1 BUSINESS AND NATURE OF OPERATIONS - -------------------------------------------------------------------------------- NATURE OF OPERATIONS Novellus Systems, Inc. is a leading manufacturer of chemical vapor deposition (CVD) systems used in the fabrication of integrated circuits. The Company's products are differentiated by their ability to provide simultaneous solutions to productivity and wafer quality problems facing the worldwide semiconductor manufacturing industry. Novellus serves the global semiconductor manufacturing market from its corporate headquarters in San Jose, California and through subsidiaries in Europe and the Far East. CONCENTRATIONS OF CREDIT RISK The Company uses financial instruments that potentially subject it to concentrations of credit risk. Such instruments include cash equivalents, short-term investments, accounts receivable, and financial instruments used in hedging activities. The Company invests its cash in cash deposits, money market funds, commercial paper, certificates of deposit, readily marketable debt securities, or medium term notes. The Company places its investments with high-credit-quality financial institutions and limits the credit exposure from any one financial institution or instrument. To date, the Company has not experienced losses on these investments. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. The Company has an exposure to nonperformance by counterparties on the foreign exchange contracts used in hedging activities. These counterparties are large international financial institutions and to date, no such counterparty has failed to meet its financial obligations to the Company. The Company does not believe there is a significant risk of non-performance by these counterparties because the Company continuously monitors its positions and the credit ratings of such counterparties and the amount of agreements and contracts it enters into with any one party. CONCENTRATIONS OF OTHER RISKS Certain of the statements contained in this annual report are forward looking statements that involve a number of risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from those described herein and include the following: MARKET RISK The Company's business depends predominantly on capital expenditures of semiconductor manufacturers, which, in turn, depend on the current and anticipated market demand for integrated circuits and products utilizing integrated circuits. The semiconductor industry has historically been very cyclical and has experienced periodic downturns, which have had a material adverse effect on the semiconductor industry's demand for semiconductor processing equipment, including equipment manufactured and marketed by the Company. No assurance can be given that the Company's net sales and operating results will not be adversely affected if downturns or slowdowns in the rate of capital investment in the semiconductor industry occur in the future. In addition, the semiconductor equipment industry is highly competitive, and subject to rapid technological change and new products and enhancements. COMPETITION The Company faces substantial competition in each of the markets in which it sells its products. Certain of the Company's competitors are larger, and have greater resources, financial, and otherwise, than the Company. There can be no assurances that the Company will be successful or as successful as its competitors, in selecting, developing, manufacturing and marketing its new products, or in enhancing its existing products. Failure to successfully develop new products could materially adversely affect the Company's business, financial condition, and results of operations. PATENTS AND PROPRIETARY RIGHTS There has been substantial litigation regarding patent and other intellectual property rights in semiconductor related industries. The Company is currently involved in such litigation (see Note 9) and although it is not aware of any infringement by its products of any patents or proprietary rights of others, it could become involved in additional litigation in the future. Although the Company does not believe the outcome of the current litigation will have a material impact on the Company's financial condition or results of operations, no assurances can be given that this litigation or future litigation will not have such an impact. INTERNATIONAL OPERATIONS Export sales accounted for approximately 37%, 41%, and 32% of net sales in 1995, 1994, and 1993, respectively. The Company anticipates that export sales will account for a significant portion of net sales in the forseeable future. As a result, a significant portion of the Company's sales will be subject to certain risks, including tariffs and other barriers, difficulties in staffing and managing foreign subsidiary operations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company is also subject to the risks associated with the imposition of legislation and regulations related to the import or export of semiconductor products. The Company cannot predict whether quotas, duties, taxes, or other charges or restrictions will be 25 implemented by the United States or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that any of these factors or the adoption of restrictive policies will not have a material adverse affect upon the Company's business, financial condition, and results of operations. In addition, sales of systems shipped by the Company's Japanese subsidiary are denominated in Japanese Yen. The Company sells the systems to its Japanese subsidiary in U.S.Dollars. It then enters into forward foreign exchange contracts to hedge against the short- term impact of foreign currency fluctuations of intercompany accounts payable denominated in U.S. Dollars recorded by the Japanese subsidiary. - -------------------------------------------------------------------------------- NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all significant intercompany accounts and transactions. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results inevitably will differ from those estimates and such differences may be material to the financial statements. REVENUE RECOGNITION Net sales consist of system and spare part sales as well as revenues from maintenance and service contracts. Revenue related to system and spare part sales is recognized on shipment. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Unearned maintenance and service contract revenue is immaterial and included in accrued liabilities. WARRANTY AND INSTALLATION The Company generally warrants its systems for a period of up to 24 months from shipment for material and labor to repair and service the system. A provision for the estimated cost of installation and warranty is recorded upon shipment. CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments with insignificant interest rate risk and maturities of ninety days or less to be cash equivalents. SHORT TERM INVESTMENTS The Company classifies its marketable debt and equity securities into held-to-maturity and available-for-sale categories in accordance with the provisions of the Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Instruments in Debt and Equity Securities." Securities classified as available-for-sale are reported at fair market value with the related unrealized gains and losses included in retained earnings. Realized gains and losses and declines in value of securities judged to be other than temporary are included in net interest. Interest on all securities is included in net interest. INVENTORIES Inventories are stated at the lower of cost (first-in, first out) or market. Inventories consisted of the following (in thousands):
----------------------------------------------------------------- DECEMBER 31, 1995 1994 ----------------------------------------------------------------- Purchased and spare parts $17,571 $14,238 Work-in-process 14,550 10,971 Finished goods 4,658 2,070 ----------------------------------------------------------------- $36,779 $27,279 -----------------------------------------------------------------
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided mainly on the straight-line method over the following useful lives:
- ------------------------------------------------------------------------------------------------------------------------------------ Machinery and equipment 5-8 Years Furniture and fixtures 5-8 Years Leasehold improvements and assets under capital lease Shorter of useful life or remaining lease term - ------------------------------------------------------------------------------------------------------------------------------------
26 In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. FOREIGN CURRENCY ACCOUNTING The U.S. Dollar is the functional currency for all foreign operations except Japan. Gains or losses, which result from the process of remeasuring foreign currency financial statements into U.S. Dollars, are immaterial and included in net income for all foreign operations except Japan. To reflect the changing nature of the operation of the Company's Japanese subsidiary, on January 1, 1995 the Company determined that the functional currency of this subsidiary is the Japanese Yen. Accordingly, translation gains or losses related to the Japan subsidiary are included as a component of stockholders' equity subsequent to January 1, 1995. FORWARD FOREIGN EXCHANGE CONTRACTS Forward foreign exchange contracts are purchased primarily to hedge sales orders denominated in yen as well as to protect the value of investments in foreign subsidiaries. Gains and losses on hedge contracts related to the yen sales orders are deferred and included in other assets or liabilities, respectively. The gains or losses on these contracts are included in income in the year in which the related transaction takes place. Realized gains and losses from the hedge contracts related to protecting the value of its investments in foreign subsidiaries are included in operations. The maturities of all of the forward exchange contracts are generally short-term in nature. NET INCOME PER SHARE Net income per share is based on the weighted average common and dilutive common equivalent shares outstanding during the period. Stock options are considered common stock equivalents and are included in the weighted average computation using the treasury stock method. ADVERTISING EXPENSES The Company accounts for advertising costs as expenses in the period in which they are incurred. Advertising expenses for 1995, 1994, and 1993 were $2,692,000, $1,164,000, and $923,000, respectively. EMPLOYEE STOCK PLANS The Company accounts for its stock option plans and its employee stock purchase plan in accordance with the provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting For Stock Issued to Employees". In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting For Stock Based Compensation". SFAS provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial position or results of operations. - -------------------------------------------------------------------------------- NOTE 3 FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK As part of the Company's asset and liability management, the Company enters into various types of transactions that involve financial instruments with off-balance sheet risk. These instruments are entered into in order to manage foreign exchange risk. The notional values, carrying amounts, and fair values are as follows at December 31,:
- ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 NOTIONAL CARRYING ESTIMATED NOTIONAL CARRYING ESTIMATED AMOUNT AMOUNT FAIR VALUE AMOUNT AMOUNT FAIR VALUE - ------------------------------------------------------------------------------------------------------------------------------------ Sell foreign currency, primarily yen $24,031 ($222) $2,257 $16,059 ($192) ($193)
27 The Company conducts its business in various foreign currencies. As a result, it is subject to the transaction exposures that arise from foreign exchange movements between the dates that foreign currency transactions are recorded and the date they are consummated. The Company enters into forward foreign exchange contracts primarily to hedge against the short-term impact of foreign currency fluctuations of intercompany accounts payable demominated in U.S. dollars recorded by the Company's Japanese subsidiary. The Company also enters into forward foreign exchange contracts to buy and sell currencies as economic hedges of the Company's remaining foreign net monetary asset position of its subsidiaries where the U.S. Dollar is the functional currency. In 1995, these hedging contracts were denominated primarily in pounds sterling. The maturities of all the forward foreign exchange contracts are generally short-term in nature. Because the impact of movements in currency exchange rates on forward foreign exchange contracts offsets the related impact on the underlying items being hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Net foreign currency gains and losses have not been material. SECURITIES HELD-TO-MATURITY AND AVAILABLE FOR SALE Investments at December 31, which were all due in less than one year consisted of the following (in thousands):
- ------------------------------------------------------------------------------------------------------------------------------------ 1995 1994 GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE - ------------------------------------------------------------------------------------------------------------------------------------ Available-for-Sale: Institutional Money Market Funds $ 2,942 $ - $ - $ 2,942 $ - $ - $ - $ - Commercial Paper 52,638 - - 52,638 - - - - ----------------------------------------------------------------------------------------------- Amounts included in cash and cash equivale 55,580 - - 55,580 - - - - ----------------------------------------------------------------------------------------------- Commercial Paper 76,019 - - 76,019 - - - - U.S. Treasury securities and obligations of U.S. Goverment Agencies 13,666 - - 13,666 - - - - ----------------------------------------------------------------------------------------------- Amounts included in short-term investments 89,685 - - 89,685 - - - - ----------------------------------------------------------------------------------------------- Total available-for-sale $ 145,265 $ - $ - $145,265 $ - $ - $ - $ - ----------------------------------------------------------------------------------------------- Held-to-Maturity: Institutional Money Market Funds $ - $ - $ - $ - $ 15,434 $ - $ - $ 15,434 Commercial Paper - - - - 27,371 - - 27,371 ----------------------------------------------------------------------------------------------- Amounts included in cash and cash equivalents - - - - 42,805 - - 42,805 ----------------------------------------------------------------------------------------------- Commercial Paper - - - - 67,219 - - 67,219 U.S. Treasury securities and obligations of U.S. Goverment Agencies - - - - 23,333 - - 23,333 ----------------------------------------------------------------------------------------------- Amounts included in short-term investments - - - - 90,552 - - 90,552 ----------------------------------------------------------------------------------------------- Total Held-to-Maturity $ - $ - $ - $ - $ 133,357 $ - $ - $ 133,357 -----------------------------------------------------------------------------------------------
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt and Equity Securities." Under SFAS No. 115, all affected debt and equity securities must be stated at fair value and classified as held-to-maturity, trading, or available for sale. The cumulative effect as of January 1, 1994, of adopting SFAS No. 115 was immaterial. On November 15, 1995, the Financial Accounting Standards Board (FASB) staff issued a Special Report "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities". In accordance with the provisions in that Special Report, the Company chose to reclassify securities from held-to-maturity to available-for-sale. At December 31, 1995, (the date of transfer) the amortized cost of these securities was $145,265,000 and the unrealized gain was not material. 28 FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS The carrying and fair values of the Company's other financial instruments at December 31 were as follows (in thousands):
- -------------------------------------------------------------------------------- 1995 1994 CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE - -------------------------------------------------------------------------------- Cash and cash equivalents $60,114 $60,114 $45,987 $45,987 Current obligations under lines of credit $7,369 $7,369 $4,518 $4,518 - --------------------------------------------------------------------------------
The fair values of the Company's short-term investments are based on quoted market prices as of December 31, 1995 and 1994. The fair value of the Company's obligations under lines of credit is based on current rates offered to the Company for similar debt instruments of the same remaining maturities. ----------------------------------------------------------------- NOTE 4 LINES OF CREDIT ----------------------------------------------------------------- The Company has lines of credit with three banks under which the Company can borrow up to $10,000,000 at the banks' prime rates (2.0 to 8.5% at December 31,1995) which expire at various dates through April 1997. The lines restrict payment of cash dividends on the Company's stock. A portion of this facility ($8,000,000) is available to the Company's Japanese subsidiary, Nippon Novellus Systems K.K. Borrowings by the subsidiary are at various rates as negotiated with the banks. At December 31, 1995 and December 31, 1994, there were no borrowings by the parent company, and $7,369,000 and $4,518,000 by the subsidiary at weighted average interest rates of 3.80% and 3.01%, respectively. --------------------------------------------------------------------------- NOTE 5 COMMITMENTS --------------------------------------------------------------------------- The Company leases its facilities under operating leases. These leases expire February 28, 1996 through March 1, 2001. One lease has an option to renew for five years. As of December 31, 1995, the minimum annual rental commitments are as follows (in thousands): Years Ending December 31, 1996 $3,006 1997 2,673 1998 2,394 1999 1,802 2000 1,029 Beyond 2000 131 --------------------------------------------------------------------------- $11,035 --------------------------------------------------------------------------- Rent expense was approximately $2,854,000, $1,748,000 and $1,437,000 for the years ended December 31, 1995, 1994 and 1993, respectively. In January 1996, the Company entered into certain agreements which, if consummated, will result in an increase in future operating lease commitments related to five buildings, three of which are currently leased. 29 --------------------------------------------------------------------------- NOTE 6 EMPLOYEE BENEFIT PLANS --------------------------------------------------------------------------- EMPLOYEE STOCK OPTION PLANS The Company grants options to employees under the 1984 and 1992 Stock Option Plans (the Plans). Under the Plans, options to purchase up to 5,670,000 shares of the Company's common stock may be granted at not less than fair market value. Options are generally exercisable over a 48-month period beginning one year after issuance or as determined by the Board of Directors. At December 31, 1995, approximately 2,191,000 shares were reserved for future issuance under the Employee Stock Option Plans and options to purchase 373,000 shares were exercisable at a weighted average exercise price of $21.33. Information with respect to stock option activity is as follows:
(in thousands, except per share data) - -------------------------------------------------------------------------------- AUTHORIZED OUTSTANDING PRICE PER SHARE - -------------------------------------------------------------------------------- Balance at December 31, 1994 43 1,835 $0.40-$53.38 Additional authorization 700 - - Options granted (771) 771 $48.13-$83.25 Options exercised - (372) $5.69-$53.38 Options cancelled 179 (194) $8.38-$83.25 ------------------------------------------------- Balance at December 31, 1995 151 2,040 $0.40-$83.25 -------------------------------------------------
EMPLOYEE STOCK PURCHASE PLANS In December 1988 and May 1992, the Company adopted qualified Employee Stock Purchase Plans under Sections 421 and 423 of the Internal Revenue Code and reserved 200,000 and 150,000 shares of common stock for issuance under the plans, respectively. In 1995, the Company's shareholders approved an amendment to increase shares reserved for issuance under the 1992 Employee Stock Purchase Plan from 150,000 shares to 250,000 shares. Under the two plans, qualified employees are entitled to purchase shares at 85% of the fair market value on specified dates. There were approximately 42,000, 46,000, and 81,000 shares issued under the two plans in 1995, 1994, and 1993, respectively. At December 31, 1995, approximately 82,000 shares were reserved for future issuance under the Employee Stock Purchase Plans. COMMON STOCK REPURCHASE PROGRAM In October 1992, the Company announced it would repurchase 700,000 shares of common stock for issuance in future Company employee benefit and compensation plans and other requirements. During 1995, the Company repurchased 641,000 shares under the program, and had purchased a total of 695,000 shares as of December 31, 1995. At December 31, 1995, approximately $9,000,000 in accounts payable related to repurchases of stock. EMPLOYEE SAVINGS AND RETIREMENT PLAN The Company maintains a 401(K) retirement savings plan for its full-time employees. Participants in the plan may contribute up to 20% of their annual salary, limited by the maximum dollar amount allowed by the Internal Revenue Code. BONUS PROGRAM The Company has a bonus plan that distributes a bonus based on the performance of the Company and its employees, including the executive officers. Charges to operations under the plan were $8,418,000, $6,247,000, and $3,047,000 in 1995, 1994, and 1993, respectively. 30 - ------------------------------------------------------------------------------- NOTE 7 TAXES ON INCOME - ------------------------------------------------------------------------------- Significant components of the provision for income taxes attributable to operations are as follows (in thousands):
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- State: Current $ 6,251 $ 4,053 $ 1,208 Deferred (1,248) (466) (55) ------------------------------------------ 5,003 3,587 1,153 Federal: Current 38,245 21,084 5,331 Deferred (7,186) (5,662) (533) ------------------------------------------ 31,059 15,422 4,798 ------------------------------------------ Foreign: Current 2,163 416 - Income tax benefits attributable to employee stock plan activity allocated to shareholders' equity 4,297 3,722 2,715 ------------------------------------------ Total provision for income taxes $ 42,522 $ 23,147 $ 8,666 ------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 1995 and December 31, 1994 are as follows (in thousands):
- -------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------- Deferred tax assets: Financial valuation accounts $ 5,524 $ 2,939 Expenses not currently deductible 9,754 4,296 State and other taxes 1,388 882 Foreign losses - 174 ------------------------------------------ Total deferred tax assets 16,666 8,291 ------------------------------------------ Deferred tax liabilities: Fixed assets (386) (445) ------------------------------------------ Total net deferred tax assets $ 16,280 $ 7,846 ------------------------------------------
The provisions for income taxes differ from provisions calculated by applying the federal statutory tax rate to income before taxes because of the following (in thousands):
- -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Expected provisions at 35% $ 43,773 $ 23,828 $ 8,673 State taxes, net of federal benefit 3,252 2,332 750 Research and development credits (566) (962) (318) Foreign Sales Corporation benefit (3,868) (2,195) (476) Other (69) 144 37 ------------------------------------------ $42,522 $23,147 $8,666 ------------------------------------------
31 --------------------------------------------------------------------------- NOTE 8 GEOGRAPHIC INFORMATION REPORTING AND MAJOR CUSTOMERS --------------------------------------------------------------------------- The Company and its subsidiaries operate in one industry segment, principally the development, manufacture, sale and service of chemical vapor deposition reactors for use in the manufacture of integrated circuits. The following is a summary of operations in geographic areas (in thousands):
- ---------------------------------------------------------------------------------------------------------------------------------- NORTH AMERICA EUROPE FAR EAST ELIMINATIONS CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------------------------- 1995 Sales to unafilliated customer $304,625 $2,967 $66,140 $- $373,732 Transfers between geographic locations 50,508 2,190 8,677 (61,375) - --------------------------------------------------------------------------------------------- Total net sales 355,133 5,157 74,817 (61,375) 373,732 Operating income 119,849 201 5,365 (9,624) 115,791 Identifiable assets 364,157 6,402 53,755 (59,626) 364,688 1994 Sales to unafilliated customer 194,562 2,635 27,482 - 224,679 Transfers between geographic locations 24,154 1,286 7,920 (33,360) - --------------------------------------------------------------------------------------------- Total net sales 218,716 3,921 35,402 (33,360) 224,679 Operating income 67,251 223 1,818 (5,595) 63,697 Identifiable assets 337,342 4,496 33,844 (110,682) 265,000 1993 Sales to unafilliated customer 98,476 1,695 13,372 - 113,543 Transfers between geographic locations 13,877 602 3,770 (18,249) - --------------------------------------------------------------------------------------------- Total net sales 112,353 2,297 17,142 (18,249) 113,543 Operating income 26,853 179 382 (4,058) 23,356 Identifiable assets 158,502 401 22,616 (50,402) 131,117
Transfers and commission arrangements between geographic areas are at prices sufficient to recover a reasonable profit. In 1995 and 1994, sales to one customer (a distributor) were 11% and 13% of net sales, respectively. In 1993, sales to an additional customer were 12% of net sales. Export sales were 37% of net sales in 1995 (28% to the Far East, 9% to all other), 41% of net sales in 1994 (29% to the Far East, 12% to all other), and 32% of net sales in 1993 (22% to the Far East, 10% to all other). Export sales do not include sales by the Company's Japanese subsidiary. ---------------------------------------------------------------------- NOTE 9 LEGAL PROCEEDINGS AND CONTINGENCIES ---------------------------------------------------------------------- On January 30, 1995, Applied Materials, Inc. (Applied) filed a patent infringement suit against the Company, alleging that the Company's TEOS products infringe one of Applied's patents that was issued in November 1994. On September 15, 1995, the Company filed a patent infringement suit against Applied, alleging that Applied's tungsten products infringe one of the Company's patents issued in August 1993. Also on September 15, 1995, Applied filed a patent infringement suit against the Company, alleging that one of the Company's tungsten processes infringes one of Applied's patents that was issued in 1991. On October 10, 1995, the Company filed a counterclaim alleging that Applied's TEOS products infringe one of the Company's patents that was issued in June 1995. On October 26, 1995, the Company filed an amended counterclaim alleging that Applied's tungsten products infringe one of the Company's patents issued in December 1994. Management's expectations are that the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position, cash flows or results of operations; however, based on future developments, management's estimate of the ultimate outcome could change in the near term. In the normal course of business, the Company from time to time receives inquiries with regard to possible patent infringements. Management believes that it is unlikely that the outcome of the patent infringment inquiries will have a material adverse effect on the Company's financial position or results of operations. 32 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE SHAREHOLDERS AND BOARD OF DIRECTORS NOVELLUS SYSTEMS, INC. We have audited the accompanying consolidated balance sheets of Novellus Systems, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Novellus Systems, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP San Jose, California January 24, 1996 33 EX-23.1 20 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Novellus Systems, Inc. of our report dated January 24, 1996, included in the 1995 Annual Report to Shareholders of Novellus Systems, Inc. Our audits also included the financial statement schedule of Novellus Systems, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-88156, 33-51056, 33-36787, 33-25897, 33-62807) pertaining to the Amended and Restated 1992 Employee Stock Purchase Plan, the Amended and Restated 1984 Stock Option Plan, the Employee Stock Purchase Plan, and the Amended and Restated 1992 Stock Option Plan, in the Registration Statement on Form S-3 (No. 33-25418) pertaining to 1,500,000 shares of common stock and in the Registration Statement on Form S-8 and Form S-3 (No. 33-30093) pertaining to the 1984 Stock Option Plan, and in the related prospectuses with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Novellus Systems, Inc. March 13, 1996 San Jose, California /s/ Ernst & Young LLP EX-27 21 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM NOVELLUS SYSTEMS, INC 1995 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 60,114 89,685 114,284 2,196 36,779 318,163 68,450 23,745 364,688 91,906 0 0 0 118,423 154,359 364,688 373,732 373,732 157,585 157,585 100,356 495 227 125,065 42,522 82,543 0 0 0 82,543 4.82 4.82
-----END PRIVACY-ENHANCED MESSAGE-----