-----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, LX/G3eXxTX+9eLasbqlSr4LZ3e/nT7mBZpHBpohovq9sByPOtovrBQQ8/aww6bV3 zzs1j8fICw3lL9pd4rsx/A== 0000936392-96-001225.txt : 20040405 0000936392-96-001225.hdr.sgml : 20040405 19961223171000 ACCESSION NUMBER: 0000936392-96-001225 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961223 DATE AS OF CHANGE: 20021230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREVIO INC CENTRAL INDEX KEY: 0000885073 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 953825313 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 005-44733 FILM NUMBER: 96685254 BUSINESS ADDRESS: STREET 1: 12636 HIGH BLUFF DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92130-2083 BUSINESS PHONE: 6197944300 FORMER COMPANY: FORMER CONFORMED NAME: STAC SOFTWARE INC DATE OF NAME CHANGE: 19981217 FORMER COMPANY: FORMER CONFORMED NAME: STAC INC /DE/ DATE OF NAME CHANGE: 19961119 FORMER COMPANY: FORMER CONFORMED NAME: STAC ELECTRONICS/CA/ DATE OF NAME CHANGE: 19951117 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ Commission File No. 0-20095 Stac, Inc - ------------------------------------------------------------------------------- (Exact Name of registrant as specified in its charter) Delaware 95-3825313 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12636 High Bluff Drive, 4th Floor, San Diego, California 92130-2093 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (619) 794-4300 ---------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE 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 --- --- 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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 of any amendment to this Form 10-K. The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of December 19, 1996 was $121,156,000.* The number of shares outstanding of the Registrant's Common Stock was 30,710,560 as of December 19, 1996. DOCUMENTS INCORPORATED BY REFERENCE Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A in connection with the 1997 Annual Meeting of Shareholders to be held on February 26, 1997 (the "1997 Annual Meeting") is incorporated herein by reference into Part III of this Report. Certain Exhibits filed with the Registrant's Registration Statement on Form S-1 (Registration No. 33-46389), as amended, the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, as amended, and Current Report on Form 8-K filed on October 16, 1995, as amended, are incorporated herein by reference into Part IV of this Report. _______________ * Excludes the Common Stock held by executive officers, directors and shareholders whose ownership exceeds 5% of the Common Stock outstanding at December 19, 1996. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant or that such person is controlled by or under common control with the Registrant. 2. 3 PART I ITEM 1. BUSINESS Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risk and uncertainties. The Company's (as defined below) future results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, fluctuations in the Company's operating results, continued new product introductions by the Company, market acceptance of the Company's new product introductions, new product introductions by competitors, OEM and distributor inventory levels and customer demand for the products incorporating Hi/fn (as defined below) semiconductors, technological changes in the personal computer and communications industries, uncertainties regarding intellectual property rights and the other factors referred to herein (including, but not limited to, the factors discussed below under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Trends and Channel Inventories," "--Seasonality," "--Operating Systems," "--Competition and Risks Associated with New Product Introductions" and "--Stock Price Volatility") and in the Company's Forms 10-Q. Stac, Inc. ("Stac" or the "Company") designs, develops, markets and supports storage management and communications software products and services The Company also designs, develops and markets software and semiconductor implementations of its proprietary LZS data compression technology and is developing software and semiconductor implementations of data encryption standards for use with its LZS products. Stac has organized its business into three product groups: storage management solutions and communications solutions which comprise Stac's software business, and networking products which comprises the business of Hi/fn Inc., Stac's networking products subsidiary ("Hi/fn"). Stac's software business designs, develops, markets and supports storage management and communications solutions that feature disaster recovery, communications and security capabilities important to Internet-connected enterprises and individuals. Both the storage management solutions and communications solutions are sold world-wide through solution providers, resellers, original equipment manufacturers (OEMs), distributors and directly through Stac's Internet site and sales personnel. The storage management solutions group is comprised principally of Replica, a software product which provides disaster recovery and backup for servers. Replica for NetWare was introduced in February 1996, and Replica for NT is expected to be available at the end of the March 1997 quarter. Stac's communications solutions group is comprised principally of ReachOut Remote Control software ("ReachOut"), a remote access software suite which allows users to access a remote PC using another PC through the Internet, or over ISDN lines, modems or networks. ReachOut works with Microsoft Corporation's Windows 95, Windows 3.x and DOS operating systems and will support Windows NT in a release expected to be available in January 1997. Stac's semiconductor products business, formerly referred to as the Technology Business Unit, has been organized as Hi/fn Inc., a Stac subsidiary. Hi/fn is focused on improving the efficiency, security and manageability of networks by providing solutions in software and silicon to packet 3. 4 processing bottlenecks. Hi/fn implements lossless data compression in software libraries and semiconductors which are marketed and sold to manufacturers of routers, firewalls, remote access servers, ISDN connectivity products, storage hardware and printers. Hi/fn is also implementing data encryption standards in software and silicon for use with data compression to provide fast, efficient and secure data transmission capabilities for its customers' products. Hi/fn's products are sold world-wide to OEMs both directly and through manufacturers' representatives. Stac also receives royalties from Microsoft and IBM Corporation for licenses of its data compression technology. The Company will receive $4.0 million in royalties quarterly through December 1997, after which the license agreements will be fully paid-up. Stac has been engaged in a continuing program to diversify its software business through acquisitions and internal product development. The Company acquired ReachOut in October 1994 for $19.1 million from Ocean Isle Software. ReachOut has provided a source of software revenue to offset the decrease in Stacker disk compression sales. Stacker sales have declined during each of fiscal 1994, 1995 and 1996 due primarily to the inclusion of disk compression in Microsoft's operating systems and to the declining costs of hard disk storage. Stac also purchased technology in March 1995 which has been used as the basis of its Replica products and is incorporating Internet technology acquired in its October 1995 purchase of California Software, Inc. into its ReachOut and Replica products. BACKGROUND COMMUNICATIONS SOLUTIONS SOFTWARE The Company's purchase of ReachOut Remote Control software in October 1994 and subsequent internally developed releases of ReachOut have established the Company as a leading provider of products for the remote access market. The remote access market has developed due to the following trends: i) the need for users to access from outside the office the programs and data on their work computer; ii) the need to transfer files from a remote computer to another; iii) the growth in remote technical support via modem; and iv) the growth in office PC networks and the need for users to access them remotely. ReachOut provides a complete remote access solution comprised of remote control, remote node and file transfer. ReachOut 6.0 supports PCs using Windows 95, Windows 3.x and DOS. ReachOut 7.0 will add Windows NT support and is expected to be available as an all-in-one-box solution in the March 1997 quarter. ReachOut remote control effectively allows one PC to take control of another PC by using a connection made over a modem, an ISDN line, the Internet or an internal network. The remote PC, or host, is operated by the user from another PC, the viewer. The host accesses files and runs programs using keystrokes and mouse directions sent by the user from the viewer PC. The viewer PC displays what is on the host PC's screen and thus gives the user a way to remotely operate the host PC and see the results of the work. ReachOut includes a remote access client that allows users to log into a computer network as a remote node. ReachOut also provides a file transfer utility that performs fast file transfer from one PC to another and allows a user to efficiently update a file by transmitting only the changes that have been made since the last time the file was transferred. 4. 5 STORAGE MANAGEMENT SOFTWARE Disaster Recovery and Back-up The network server market has grown rapidly as more information is being shared and processed across networks. Also, the storage capacity of hard disk drives installed on servers has grown dramatically. With network servers providing shared access to mission critical information twenty-four hours a day seven days a week, the need for fast, reliable data backup and disaster recovery has become acute. Traditionally servers have been backed up a file at a time. If a lost or deleted file needed to be recovered, specialized software would have to be run by a network systems administrator. If a server was lost and the files destroyed, a new server would have to be formatted and the network operating system reinstalled before going to tapes to try to recover the data. The result has been costly server down time. Stac began shipping Replica for NetWare in February 1996. Replica was developed by Stac based on core backup and disaster recovery technology purchased from Crossware Development Corporation and Rememory, Inc. in 1995. Unlike traditional file-by-file backup technologies, Replica uses Stac's Object Replication Technology to replicate entire servers or volumes. Replication allows live servers to be backed up and is dramatically faster than file-by-file software because Replica does not have to open and close each file as it replicates. A replicated volume can be mounted directly as a NetWare volume so that downtime due to a server crash can be minimized. Unlike disaster recovery routines provided by file-by-file software, Replica creates a complete server replica and can restore a server without having to reinstall networking software or rebuild disk partitions. The Company expects to ship Replica for Windows NT in late March 1997 and thus provide disaster recovery support for a rapidly growing segment of the network server market. Other Storage Management Products The Company's family of Stacker products provided the majority of Stac's software revenues for fiscal years 1991 though 1994. Stacker software generally provides an average two-to-one compression ratio when compressing all of the files stored on a personal computer disk drive. Stacker software is sold to end users for data compression on personal computer storage devices and operates on computers running the Windows 95, MS-DOS, PC-DOS, Windows 3.1, OS/2 or Macintosh operating systems. Two factors have led to a decrease in the revenue the Company receives from its Stacker products. Data compression utilities are now provided with Windows NT, Windows 95, MS-DOS and PC-DOS under patent or software licenses from Stac and, secondly, the cost per megabyte of hard disk drives has declined significantly. As a result, customers have the choice of inexpensively upgrading their hard disk drives or using compression utilities that are included with the operating systems sold with most personal computers. Due to the above factors, the Company no longer invests significant resources in the development or marketing of its Stacker products, but does support retail and OEM sales of the product line. 5. 6 HI/FN As the need to communicate among and within organizations has increased, the need for efficient and secure network communications equipment has also grown. At the same time, Hi/fn's business has migrated from supplying a range of semiconductors and software libraries to backup tape drive OEMs, to supplying a range of data compression and data encryption semiconductors and software libraries to network communications OEMs. Hi/fn's current semiconductor and software libraries are based on Hi/fn's patented LZS lossless data compression technology which compresses and decompresses data rapidly, efficiently and transparently. LZS data compression technology compresses all types of data found on a personal computer or transmitted over communications systems, including executable files and text, spreadsheet, graphics and database files. The amount of compression varies depending on the inherent redundancy of the data in the files being compressed, with text, spreadsheet, graphics and database files achieving higher compression ratios than executable files. Hi/fn has also developed proprietary semiconductor architectures that enable its semiconductor-based products to achieve faster processing throughputs than those achievable through software alone. Hi/fn is currently developing semiconductors and software libraries which implement data encryption standards. These products are intended to be used with and integrated with Hi/fn's LZS products. Hi/fn's family of semiconductors and software libraries are sold to OEMs for use in network bridges and routers, ISDN and frame relay products, high speed DLT back-up tape drives, printers and other applications. LZS technology products have become the de facto standard for internetwork communications. STRATEGY STORAGE MANAGEMENT AND COMMUNICATIONS SOFTWARE Stac's strategy with respect to its storage management and communications software groups is to provide software solutions for information systems managers and end users, within an organization or at home, to help them better manage and use their personal computer storage and communications investments through the use of intranet and Internet enabled disaster recovery, communications and security capabilities. The Company attempts to meet this goal through internal research and development and product acquisitions. In October 1994, Stac purchased ReachOut Remote Control software from Ocean Isle Software. The acquisition of ReachOut expanded the Company's core competencies from storage systems using data compression to include communications. Following the acquisition of ReachOut, the Company has introduced versions 5.0 and 6.0 of ReachOut, creating the first complete remote access software product. ReachOut now offers high performance remote control, rapid file transfer and remote node access to networks for Windows 95, Windows 3.x and DOS and, in its next release, Windows NT 4.0. ReachOut 6. 7 was named Editors' Choice by PC Magazine in each of 1995 and 1996 and has won a number of other awards and recognition. In March 1995 Stac acquired Novell NetWare server disaster recovery and backup technology from Crossware Development and Rememory. The Company has invested heavily in further development of those technologies and has added additional features together with new, innovative technology. The result of those development efforts was the February 1996 shipment of Replica for NetWare. Replica introduces Stac's Object Replication Technology as a replacement for file-by-file backup software solutions that do not provide fast, effective disaster recovery. In October 1995 the Company acquired Internet software and development capability through the purchase of California Software. The Company's acquisition of California Software has provided the Company with core technology and development resources to integrate Internet functionality into its ReachOut and Replica products. HI/FN The mission of Hi/fn, Stac's networking products subsidiary, is to offer a range of products which incorporate the Company's LZS data compression technology and industry standard data encryption that address its customers' security, bandwidth and capacity needs. Today Hi/fn provides LZS data compression technology in a range of software and semiconductor products that meet a variety of customer performance needs. LZS data compression has addressed a key issue for today's computer users: data communications bandwidth. Efficient exchange of electronic data is vital to the growing ranks of users linked across networks, over telecommunications channels and via wireless communications systems. LZS data compression significantly streamlines this process. By transmitting data in compressed form, the effective rate of transmission is accelerated, the expense of data exchanges is cut by half or more and the volume of traffic that can be carried over communications channels is doubled or more. LZS implementations are also used by tape backup and printer OEMs to increase capacity or reduce the cost of memory in their products. Hi/fn is now addressing the security needs of its communications equipment customers. These needs have been brought on by the rapid adoption of the Internet as an integrated part of enterprises' network infrastructure. Hi/fn is implementing data encryption standards in software and silicon. Then, by combining data encryption with LZS data compression, Hi/fn can provide communications equipment OEMs with software and semiconductor products which not only increase bandwidth through compression, but also offer security through the more efficient encryption of compressed data. PRODUCTS The Company currently sells its storage management and communications software solutions to end users and OEMs, and Hi/fn sells software libraries and semiconductor products to equipment and software OEMs. Software solution sales consist of the ReachOut and Replica products and, to a lesser extent, CD-QuickShare and Stacker storage management products. Products sold to Hi/fn's customers consist of semiconductors and LZS and MUM software libraries. 7. 8 REACHOUT REMOTE ACCESS SOFTWARE ReachOut is a communications software program that allows one PC to remotely control another PC by replicating the visual display and controlling the keyboard and mouse. Using ReachOut and a modem, ISDN line or the Internet, you can use your keyboard and mouse to operate a distant PC, synchronize it with your local PC, transfer files or establish a remote node connection. Using ReachOut over a network connection, you can control or monitor another PC on the same Local Area Network (LAN) or Wide-Area Network (WAN). ReachOut gives users, support personnel and administrators new tools with which to do their jobs better. For example: i) telecommuters may access and operate their desktop PC from home or while traveling for business; ii) manufacturers' product support personnel can dial into a computer and diagnose software or hardware problems without the expense and inconvenience of a product return or an on-site visit by a technician; iii) corporate helpdesk personnel can use ReachOut to instantly connect to any workstation on their internal network to support Windows and DOS applications; iv) product demonstration computers can be operated remotely to give demonstrations of software products without having to load and configure each computer with the application that is being demonstrated; v) files can be quickly and easily transferred from a distant computer over a modem connection; or vi) using a ReachOut gateway, any workstation on your corporate LAN or WAN can be accessed. The following table lists each of the principal products in the ReachOut family:
EXPECTED DATE OF PRODUCT DESCRIPTION SELLING PRICE FIRST SHIPMENT ------- ----------- ------------- -------------- ReachOut modem and network Software for Windows 95, Windows $139 September 1991 version with host and 3.x and DOS-based computers viewer ReachOut modem and network Software for Windows 95, Windows $81 January 1992 version with host only. 3.x and DOS-based computers. ReachOut modem and network Software for Windows 95, Windows $93 January 1992 version with viewer only 3.x and DOS-based computers.
ReachOut modem and network version, currently sold as release 6.0, is a communications software program that allows a user to connect to a PC by modem or ISDN, through the Internet or over a network to access another PC in order to remotely control that computer, transfer files between computers, synchronize computers, or establish a remote node connection. The software is sold with both the host and viewer software in one package for users who need a one-to-one remote connection. The host only software is sold for applications such as for manufacturers whose technical support 8. 9 personnel need to view many hosts from their support location. The viewer only software is for users such as sales persons giving demonstrations who need to view one host from many remote locations. ReachOut 7.0 is presently in beta testing and is expected to be commercially available in the March 1997 quarter. ReachOut 7.0 will support Microsoft's Windows NT operating system as well as the other operating systems supported by ReachOut 6.0. REPLICA Replica is a backup and disaster recovery software product currently being sold as version 2.1 for Novell NetWare servers. Replica uses Stac's Object Replication Technology to quickly replicate entire servers or volumes and to provide easy access to backed up files plus fast, dependable disaster recovery. The following table lists each of the principal products in the Replica family and their current pricing. The Company expects to change its pricing for Replica in January 1997 to reflect competitive pricing models:
EXPECTED DATE OF PRODUCT DESCRIPTION SELLING PRICE FIRST SHIPMENT ------- ----------- ------------- -------------- Replica for NetWare, one Software for Novell NetWare $740 February 1996 server license. servers. Replica. High Performance Software to support DLT and $450 March 1996 Option other high speed backup devices and autoloaders. Replica. Multi-Server Software for Novell NetWare $450 March 1996 Agent Option. servers.
HI/FN PRODUCTS Hi/fn supplies OEMs with data compression coprocessors and software libraries for applications in bridges, routers, ISDN and frame relay products and for peripheral devices such as back-up storage devices and printers. Hi/fn products accounted for 16% and 28% of revenues in fiscal 1995 and 1996 respectively. 9. 10 The following table lists each of the principal products that Hi/fn sells to OEMs:
DATE OF PRODUCT DESCRIPTION FIRST SHIPMENT ------- ----------- -------------- 9705 Data compression multitasking coprocessor for use on October 1991 computer and communication devices. 9706 Data compression multitasking coprocessor for use on December 1992 computer and communication devices. 9710 Data compression coprocessor for very high speed September 1996 applications. Provides LZS multi-history support. 9711 Data compression coprocessor for very high speed Expected June Quarter of applications. Provides LZS and MPPC multi-history Fiscal 1997 support. 9732 Very high speed data compression for storage and June 1994 printer applications. MUM 1.0 Software implementing encryption and compression. Expected March Quarter of Fiscal 1997 LZS221 Compression software libraries licensed for November 1988 operation with various microprocessors. MPPC Compression software libraries licensed for July 1996 operation with various microprocessors.
The 9705 data compression coprocessor compresses data at approximately 2.5 megabytes per second and decompresses data at approximately 6 megabytes per second. The power management and multitasking features of this coprocessor suit it to communications applications. The 9705 can be used on local area network adapter cards and network management devices, such as bridges, routers and remote access servers, that allow communications with nodes on a remote local area network as if they were local. The 9705 can quickly switch between more than 1,500 concurrent two-way communications sessions over a single communications line. The 9706 has the same performance as the 9705, but may be configured for 16-bit or 32-bit data transfers. The 9732 data compression coprocessor is used in communications and peripheral storage products. The 9732 allows compression rates of 12 megabytes per second and decompression rates of 16 megabytes per second and has on-chip RAM for a single-chip Hi/fn LZS solution. 10. 11 The 9710 data compression coprocessor is used in communications products. The 9710 is the next generation of the 9705 and 9706. It may be configured for 16-bit or 32-bit data transfers, and compresses data at approximately 8 megabytes per second and decompresses data at approximately 15 megabytes per second. The 9710 implements LZS multi-history support. The 9711 data compression coprocessor, expected to be available in the June quarter of fiscal 1997, will have the same performance characteristics as the 9710, but will also implement MPPC multi- history support. MUM 1.0 encryption and LZS compression software will be used in communications products. It will be implemented in C source code and in optimized assembly for applications based on Motorola's 680xx processors. MUM 1.0 is expected to be available in the March quarter of fiscal 1997. The LZS221 family is the Company's software implementation of its LZS data compression technology in C source code and in optimized assembly for OEM applications based on Intel's 80x86 and i960 processors as well as Motorola's 680x0 processors. MPPC software is licensed from Microsoft Corporation and implements in C source code the Company's compression technology for use with Microsoft's operating systems. The Company currently grants annual, renewable licenses for both the LZS and MPPC software to software developers and equipment OEMs. Pricing for the licenses is based on related revenue from an OEM's licensed application. RESEARCH AND DEVELOPMENT The market for the Company's products is characterized by rapid technological change, requiring continuous investment to develop and bring to market new products. The Company believes that significant factors in its future success will be its ability to identify and respond to customer needs, to enhance its existing products, to introduce new products on a timely and cost-effective basis, to extend its core technology into new platforms and applications, and to anticipate and respond to emerging standards and other technological changes. The Company intends to continue to develop both its software products and semiconductor products as market conditions warrant and to invest in the development of new products. Foreign language versions of products will be developed as market conditions warrant. The Company has developed fully translated German and Japanese versions of its ReachOut and Replica software products for sale in foreign markets and intends to work with partners in other countries to produce other language translations as market conditions warrant. The Company's research and development is conducted primarily by its internal product development staff, through contractors, and through acquisitions from third parties. Research and development expenses were $7.2 million in 1995 and $8.4 million in 1996, which represented 16% and 18% of revenues in those periods, respectively. 11. 12 MARKETING AND SALES The Company markets and sells its storage management and communications software products domestically through: i) its internal direct sales staff which, directly and together with corporate resellers, value added resellers and systems integrators, sells to corporations, government entities and other enterprises and ii) distributors that sell to software specialty resellers, computer superstores, mass merchandisers and warehouse outlets. In fiscal 1995 Ingram Micro accounted for 11% of total revenues and in fiscal 1996 accounted for less than 10% of total revenues. The Company's domestic distributors resell the Company's products in North America on a nonexclusive basis pursuant to distribution agreements that have one-year terms with automatic one-year renewal periods. The Company retains ownership of its proprietary rights associated with its products and agrees to indemnify the distributor for third-party claims of proprietary rights infringement to the extent such claims are brought against the distributor. The Company's current return policy allows its distributors to return any new, unused product in the distributor's inventory within a contractually defined period of up to 180 days from the notice of discontinuance of any product, or of any new version of a product, for a credit against balancing orders for other products of the Company. In addition, distributors may participate quarterly in a stock balancing program which, subject to certain limitations, allows them to return purchased products within the second month of each calendar quarter for credit towards future purchases or a cash refund. The Company believes that this stock balancing provision is customary in the industry and should not materially increase risks associated with the relationship. End users may return defective products pursuant to policies established by their dealer or directly to the Company within ninety days of purchase. The Company reviews its allowances for returns and distributor inventory levels on a monthly basis and believes its allowances for returns are adequate. However, due to uncertainty regarding end user demand and competitive product introductions, there can be no assurance that actual returns in excess of recorded allowances will not occur and result in a material adverse effect on the Company's business, operating results or financial condition. The Company also trains and otherwise supports distributors, resellers and dealers and sponsors joint marketing programs designed to create end-user demand for its products. The Company's marketing programs include advertising in the trade press, targeted direct mail campaigns, sales brochures and participation in trade shows and seminars. These marketing programs have three objectives: create brand name awareness of the Company and its products; generate sales leads for its resellers, distributors and inside direct sales personnel; and support the efforts of its resellers through sales tools and training. The Company seeks to educate individuals and key decision makers in corporations and government about the benefits of its products through specialized marketing programs. The Company believes a significant competitive factor in the personal computer business is the ability to provide a high level of customer support. The Company provides telephone support to registered users and resellers. In addition the Company provides automated and electronic support services through its electronic bulletin board service, its Stac.com World Wide Web site, and via automated fax-on-demand and voice response services. 12. 13 The Company sells its ReachOut, Replica, CD-QuickShare and Stacker products internationally through a number of distributors in Europe, the Pacific Rim and Latin America. The European distributors are managed by sales personnel located in Stac's sales office in the United Kingdom ("Stac UK"). Distributors in the Pacific Rim and Latin America are managed by sales personnel at the Company's headquarters in California. International sales accounted for revenues of $4.8 million in each of fiscal 1995 and 1996. Technical support for Stac products sold in foreign markets is provided by Stac UK, Stac or through contracts with third parties. The Company's international operations are subject to certain risks common to international activities, such as changes in foreign governmental regulations, currency exchange rates, tariffs and taxes, export license requirements, the imposition of trade barriers, difficulties in staffing and managing foreign operations, and political and economic instability. In addition to the above channels used for marketing and selling the Company's end-user software products, the Company's direct sales staff license its software products to personal computer OEM's and other software and hardware developers for incorporation into their own products. Hi/fn sells its semiconductor products and software libraries directly to OEMs and utilizes a domestic network of independent manufacturer's representatives who are compensated on a commission basis to introduce Hi/fn's products to OEMs and provide local sales support for existing OEM customers. These manufacturer's representatives are managed and supported by Hi/fn's internal sales and support staff. Hi/fn selects its representatives on the basis of their reputation, industry knowledge and the product lines they represent. Hi/fn also sells its semiconductor products in Japan and Hong Kong through industrial distributors and directly elsewhere. COMPETITION The market for the Company's products is intensely competitive. Increased competition could result not only in a decline in sales volume, but also in price reductions that could have a material adverse effect on the Company's business, operating results and financial condition. The Company's ReachOut product competes in the remote control software market against more established products such as Symantec Corporation's pcAnywhere, MicroCom, Inc.'s Carbon Copy and Traveling Software, Inc.'s Laplink. Symantec, MicroCom and Traveling Software are shipping versions of their remote control products that include Windows NT support. ReachOut also competes against remote access products from companies such as Citrix, Inc. and Shiva Corporation. Further, Microsoft could elect to incorporate remote control or additional remote access capabilities into its operating systems which are pre-installed on most personal computers. The Company began shipping Replica back-up and disaster recovery software for Novell NetWare during the second quarter of fiscal 1996. Replica competes with well established back-up products from Cheyenne Software, Inc., recently purchased by Computer Associates, Inc., and Seagate Software, Inc. (owned by Seagate Technologies, Inc.), both of which have established channels of distribution and installed customer bases. Resellers could choose not to sell Replica over competitors' products with the result that significant sales of Replica could fail to materialize, or products similar to Replica could be successfully introduced to resellers by the Company's competitors. Also, Replica is 13. 14 being introduced into a sophisticated NetWare server environment. While the Company has invested significant resources in testing Replica under a variety of conditions, configurations and circumstances, there are likely to be environments which have not been anticipated for which additional development of Replica will be necessary. In addition, many enterprises operate in a mixed server environment which includes NetWare and Windows NT and requirements for client back-up support. While the Company intends to provide support for a mixed server environment and for client back-up, such versions will not be available until fiscal 1997. The Company's license agreement with IBM Corporation grants IBM the right to implement the Company's LZS data compression technology in IBM hardware and software products. Also, microprocessor and chip set suppliers, customers and others could seek to expand their product offerings by designing and selling products using competitive data compression or other technology that could render obsolete or adversely affect sales of the Company's semiconductor and LZS221 products. MANUFACTURING AND BACKLOG The majority of the Company's software products are manufactured in accordance with the Company's specifications by third parties that specialize in the duplication and assembly of software products. The principal materials and components used in the Company's software products include diskettes and CD's, used for distribution of the software code, and user manuals. The software manufacturing process involves the duplication of media, the printing of user manuals, assembly of components, and final packaging. The Company believes there is an adequate supply of and source for the raw materials used in its software products and that multiple sources are available for media duplication, manual printing and final packaging. The Company generally ships software products within ten days after the receipt of an order, although rapid increases in demand as the result of the release of a new product or a product upgrade could cause shipping delays. Generally, the Company has relatively little, if any, backlog of orders for its software products at any given time and does not consider backlog to be a measure of sales for any future period. Hi/fn's semiconductor products are manufactured by third-party semiconductor manufacturers. In the past, most recently during fiscal 1995, the lead times required by Hi/fn's manufacturers have increased due to growing world-wide demand for semiconductor products. In addition, future worldwide semiconductor capacity may not always be able to service demand. Lead times from Hi/fn's manufacturers are currently from ten to fourteen weeks, but have been as high as twenty weeks during times of capacity shortages. Hi/fn has instituted programs to have its principal semiconductor products manufactured by two different manufacturers where feasible. However, if Hi/fn has difficulty procuring sufficient quantities of its semiconductor products to meet customer demands, resulting shortages could have a material adverse affect on the Company's financial results. Hi/fn quotes lead times for its semiconductor products of twelve weeks from receipt of order and generally ships semiconductor products within one week of the quoted lead times. Hi/fn has a backlog of approximately three to five months of semiconductor sales, representing order lead times. Backlog 14. 15 for semiconductor products is subject to rescheduling and cancellation by customers and is not necessarily indicative of future demand for semiconductor products. PATENTS, TRADEMARKS AND PRODUCT PROTECTION The Company attempts to protect its products with a combination of trade secret, patent, copyright, maskwork and trademark laws and with license agreements. The Company or its subsidiaries own ten issued United States patents relating to data compression, which expire from 2006 to 2013. One or more of the patents are employed in the Company's data compression coprocessors and Stacker, ReachOut, and LZS221 and MPPC software products. The company also owns one patent relating to data compression in each of the United Kingdom, Germany and Belgium and has other patents pending. The status of patents covering technology is highly uncertain, involving complex legal and factual questions. There can be no assurance that patent applications filed by the Company will result in patents being issued or that its patents, and any patents that may be issued to it in the future, will afford protection against competitors with similar technology; nor can there be any assurance that patents issued to the Company will not be infringed upon or designed around by others or that others will not obtain patents that the Company would need to license or design around or that the Company's competitors will not independently develop non-infringing technologies or products that are equivalent or superior in function or performance. If patents held by competitors or others are upheld by the courts and found to be infringed by Stac's products, the holders of such patents might be in a position to require the Company to stop manufacturing, using or selling the infringing products and to pay up to three times damages to the holders of the infringed patents. There can be no assurance that any licenses that might be required for the Company's products would be available on reasonable terms, if at all. In April 1993, a favorable judgment for Stac was entered as part of a settlement in a patent infringement lawsuit against a competitor, Integrated Information Technology. The judgment states that the two Stac data compression patents involved were valid and infringed by the defendant. In February 1994, a Federal jury found that two data compression patents asserted by the Company against Microsoft were valid and infringed. The Company settled the suit in June 1994. The Company generally licenses its software products to end user customers by use of a "shrink-wrap" license (a "shrink-wrap" license agreement is a printed license agreement included within packaged software that sets forth the terms and conditions under which the end user can use the product). The terms of this license agreement determine how the software may be used and generally limit the user to use of the software on a single computer and to make a back-up copy and prohibit the end user from providing the product or copies to multiple users. Shrink-wrap licenses are unenforceable under the laws of certain jurisdictions. Judicial enforcement of copyright laws is also uncertain. Policing unauthorized use of computer software is difficult, and software piracy is a persistent problem for the packaged software industry. These problems may be particularly acute in international markets. There can be no assurance that misappropriation will not occur. The Company's trademark rights include rights associated with its use of its trademarks and rights obtained by registrations of its trademarks. The Company has obtained United States trademark registrations for certain trademarks, and has applied for or obtained registration in various international 15. 16 jurisdictions. The Company's rights to register and use its trademarks do not ensure that the Company has superior rights to others that may have registered or used identical or related trademarks on related goods or services, nor that such registrations or uses will not be used to attempt to foreclose use of a particular trademark by the Company. Because the personal computer industry is characterized by rapid technological change, the policing of the unauthorized use of personal computer software is a difficult task and software piracy is expected to continue to be a persistent problem for the packaged software industry. Despite steps taken by Stac to protect its software products, third parties may still make unauthorized copies of Stac's products for their own use or for sale to others. The Company believes that the knowledge, abilities and experience of its employees, its timely product enhancements and upgrades and the availability and quality of its support services provided to users are more significant factors in influencing end users to buy its products than are patent, trade secret and copyright protection laws. EMPLOYEES As of December 15, 1996, Stac employed approximately 160 full-time employees, of whom approximately 60 were employed in research and development, 75 in sales, marketing and customer support and 25 in operations and administration. The Company also uses approximately 40 contractors, principally for research and development activities. None of the Company's employees is represented by a labor union or subject to a collective bargaining agreement. Stac has never experienced a work stoppage due to labor difficulties and believes that its employee relations are good. ITEM 2. PROPERTIES The Company's principal domestic administrative, marketing, sales and product development activities are located in approximately 46,000 square feet of leased facilities in San Diego, California. The space is occupied under lease agreements that expire in March 2000. The Company has options to renew the leases for an additional five year period on terms specified in the current lease agreements. The Company leases approximately 1,600 square feet of warehouse space in Carlsbad, California on a quarter-to-quarter basis and approximately 2,000 square feet of office space in San Jose, California. The Company's subsidiary in the United Kingdom leases 2,600 square feet of office space near London under a ten year lease cancelable by either party after November 1998. See Note 7 of Notes to Financial Statements for information regarding the Company's obligations under its facilities leases. ITEM 3. LEGAL PROCEEDINGS In July 1992, separate shareholder class action complaints were filed in the United States District Court for the Southern District of California, alleging substantially identical violations of the federal securities laws against the Company and certain of its Directors for allegedly misstating and omitting material facts required to be stated in the Company's May 7, 1992 prospectus and in subsequent public announcements in order to artificially inflate the price of the Company's stock. Each suit was purportedly brought on behalf of all persons who purchased the Company's common stock during the period May 7, 1992 through July 9, 1992, inclusive. Each suit seeks compensatory damages in unspecified amounts and other relief. A motion to consolidate the two actions was granted and a 16. 17 consolidated complaint filed. A motion to dismiss the complaint was granted on September 20, 1993 with leave to amend the complaint. On November 18, 1993, plaintiffs amended the complaint and named additional Directors and Officers of the Company as defendants. The amended complaint alleged substantially the same violations as the complaint first filed in July 1992. In July 1994 the San Diego Federal District Court dismissed the action, with prejudice. The plaintiffs' appeals of the District Court's decision were denied by the Ninth Circuit Court of Appeals and the District Court's decision affirmed and entered. Plaintiffs have asked the United States Supreme Court to review the Appellate Court's decision. The Company and the individual defendants have vigorously defended against the actions. Although the ultimate outcome of the litigation cannot be predicted with certainty, based upon their present understanding of the law and facts, management and the individual defendants believe that they have meritorious defenses to the claims alleged. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 1996. 17. 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Common Stock of Stac is traded on the Nasdaq National Market ("NNM") under the symbol "STAC." The following table sets forth the range of high and low sales prices on the NNM for the Common Stock for the periods indicated and since January 1, 1994. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions.
Common Stock Prices High Low ----------- ---------- Calendar Year 1994: First Quarter $ 8.25 $3.50 Second Quarter $ 7.375 $3.875 Third Quarter $ 6.63 $5.00 Fourth Quarter $ 6.75 $4.25 Calendar Year 1995: First Quarter $ 6.38 $4.88 Second Quarter $ 8.13 $5.38 Third Quarter $10.25 $7.25 Fourth Quarter $15.13 $6.75 Calendar Year 1996: First Quarter $14.50 $8.75 Second Quarter $13.88 $9.88 Third Quarter $11.25 $6.88 Fourth Quarter (through December 19, 1996) $ 8.63 $6.25
The Company has not paid dividends on its Common Stock and presently intends to continue this policy in order to retain earnings for use in its business. The Company had approximately 426 shareholders of record as of December 11, 1996. The Company believes it has in excess of 500 beneficial shareholders. The last sales price for the Company's Common Stock, as reported on the NNM on December 19, 1996, was $6.75. 18. 19 ITEM 6. SELECTED FINANCIAL DATA The following data, insofar as it relates to each of the fiscal years 1992 through 1996, have been derived from audited financial statements, including the balance sheet at September 30, 1996 and 1995 and the related statements of operations for each of the three years ended September 30, 1996 and notes thereto. This data should be read in conjunction with the consolidated financial statements of the Company and related notes thereto for the corresponding periods which are included herein. (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED SEPTEMBER 30, 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- Revenues $46,765 $45,804 $31,325 $36,984 $33,356 Operating income (loss) 2,352 (1,035) (750) (234) 12,106 Net income (loss) (1,675) 1,496 333 415 8,362 Net income (loss) available for common shareholders (1,843) (102) (116) 415 8,362 Net income (loss) per common share (0.06) 0.00 0.00 0.02 0.34 Common shares used to compute per share 30,068 25,391 24,643 25,013 24,529 data Working capital $68,498 $65,186 $71,800 $31,053 $30,773 Total assets 83,690 80,611 77,952 37,674 40,597 Common stock and other shareholders' equity 78,999 36,395 34,705 33,001 32,314
The Company has never declared or paid any cash dividends on its common stock. The company currently intends to retain remaining future earnings to finance the growth and development of its business. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Stac, Inc. ("Stac" or the "Company") designs, develops, markets and supports storage management and communications software products and services The Company also designs, develops and markets software and semiconductor implementations of its proprietary LZS data compression technology and is developing software and semiconductor implementations of data encryption standards for use with its LZS products. Stac has organized its business into three product groups: storage management solutions and communications solutions which comprise Stac's software business, and networking products which comprises the business of Hi/fn Inc., Stac's networking products subsidiary ("Hi/fn"). Stac's software business designs, develops, markets and supports storage management and communications solutions that feature disaster recovery, communications and security capabilities important to Internet-connected enterprises and individuals. Both the storage management solutions and communications solutions are sold world-wide through solution providers, resellers, original equipment manufacturers (OEMs), distributors and directly through Stac's Internet site and sales personnel. 19. 20 The storage management solutions group is comprised principally of Replica, a software product which provides disaster recovery and backup for servers. Replica for NetWare was introduced in February 1996, and Replica for NT is expected to be available at the end of the March 1997 quarter. Stac's communications solutions group is comprised principally of ReachOut Remote Control software ("ReachOut"), a remote access software suite which allows users to access a remote PC using another PC through the Internet, or over ISDN lines, modems or networks. ReachOut works with Microsoft Corporation's Windows 95, Windows 3.x and DOS operating systems and will support Windows NT in a release expected to be available in the March 1997 quarter. Stac's semiconductor products business, formerly referred to as the Technology Business Unit, has been organized as Hi/fn Inc., a Stac subsidiary. Hi/fn is focused on improving the efficiency, security and manageability of networks by providing solutions in software and silicon to packet processing bottlenecks. Hi/fn implements lossless data compression in software libraries and semiconductors which are marketed and sold to manufacturers of routers, firewalls, remote access servers, ISDN connectivity products, storage hardware and printers. Hi/fn is also implementing data encryption standards in software and silicon for use with data compression to provide fast, efficient and secure data transmission capabilities for its customers' products. Hi/fn's products are sold world-wide to OEMs both directly and through manufacturers' representatives. Stac also receives royalties from Microsoft and IBM Corporation for licenses of its data compression technology. The Company will receive $4.0 million in royalties quarterly through December 1997, after which the license agreements will be fully paid-up. Stac has been engaged in a continuing program to diversify its software business through acquisitions and internal product development. The Company acquired ReachOut in October 1994 for $19.1 million from Ocean Isle Software. ReachOut has provided a source of software revenue to offset the decrease in Stacker disk compression sales. Stacker sales have declined during each of fiscal 1996, 1995 and 1994 due primarily to the inclusion of disk compression in Microsoft's operating systems and to the declining costs of hard disk storage. Stac also purchased technology in March 1995 which has been used as the basis of its Replica products and is incorporating Internet technology acquired in its October 1995 purchase of California Software, Inc. into its ReachOut and Replica products. The following discussion should be read in conjunction with the consolidated financial statements included elsewhere within this annual report. Fluctuations in annual results may occur as a result of factors affecting demand for the Company's products such as the timing of the Company's and competitors' new product introductions and upgrades. Due to such fluctuations, historical results and percentage relationships are not necessarily indicative of the operating results for any future period. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risk and uncertainties. The Company's future results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, fluctuations in the Company's operating results, continued new product introductions by the Company, market acceptance of the Company's new product introductions, new product introductions by competitors, OEM and distributor inventory levels and customer demand for the products incorporating Hi/fn semiconductors, technological changes in the personal computer and communications industries, uncertainties regarding intellectual property rights and the other factors referred to herein (including, but not limited to, the factors discussed below under "Quarterly Trends and Channel Inventories," "Seasonality," "Operating Systems," "Competition and Risks Associated with New Product Introductions" and "Stock Price Volatility") and in the Company's Forms 10-Q. RESULTS OF OPERATIONS The following table sets forth for the Company's results of operations and the percentage relationship of certain items to revenues during the periods shown. Unless otherwise indicated, references to years are to fiscal years which ended September 30. 20. 21
1996 1995 1994 ---- ---- ---- Revenues 100% 100% 100% Cost of revenues 14 12 16 --- --- ---- Gross margin 86 88 84 --- --- ---- Research and development 18 16 18 Purchased research and development 26 29 - Sales and marketing 28 29 38 General and administrative 9 11 30 Restructuring - 5 - --- --- ---- 81 90 86 --- --- ---- Operating income (loss) 5 (2) (2) Interest income 5 4 4 ---- --- ---- Income before income taxes 10 2 2 Provision for (benefit from) income taxes 13 (1) 1 --- --- ---- Net income (loss) (3)% 3% 1% ==== === ====
REVENUES Revenues increased by 2% to $46.8 million in 1996 compared to 1995 revenues, and increased by 46% in 1995 to $45.8 million compared to 1994 revenues of $31.3 million. The increase in 1996 revenues was due to increased Hi/fn sales offset in part by a decline in software sales as discussed below. The increase in 1995 revenues was due primarily to license fees received from Microsoft and IBM for Stac lossless data compression technology.
1996 1995 1994 ---- ---- ---- Net Revenue ($millions): Software $17.9 38% $21.7 47% $20.1 64% Hi/fn 12.9 28 7.3 16 5.7 18 Licenses 16.0 34 16.8 37 5.5 18 ----- --- ----- --- ----- --- Total $46.8 100% $45.8 100% $31.3 100% ----- --- ----- --- ----- ---
Software sales, which are comprised of domestic and international sales and licenses through distribution, retailers, solution providers, OEM and direct channels, accounted for $17.9 million of revenues in 1996, $21.7 million in 1995, and $20.1 million in 1994. Software sales decreased by 18% in 1996 from 1995 due primarily to declining sales of Stacker as discussed in the Overview above, offset by revenues from ReachOut and, to a lesser extent, from Replica. Software sales increased by 8% in 1995 from 1994 due primarily to revenues from the October 1994 acquisition of ReachOut, offset by declines in Stacker sales. Revenues from Hi/fn, Stac's semiconductor subsidiary which develops, markets and sells semiconductors and software libraries derived from the Company's data compression technology and from data encryption standards, were $12.9 million in 1996, $7.3 million in 1995, and $5.7 million in 1994. The increase in revenues in both 1996 and 1995 are due primarily to sales of the Company's data 21. 22 compression coprocessors to providers of high speed networks and tape drives. The Company expects Hi/fn semiconductor sales in the December 1996 quarter to decrease significantly from the levels of the September 1996 quarter due to high levels of inventory held by some OEM customers, and OEMs practice of building product in large lots in order to achieve manufacturing efficiencies. The Company expects Hi/fn revenues to then increase in the March 1997 quarter from levels of the December 1996 quarter as OEM inventories are consumed and new products from Hi/fn are shipped to customers. Royalties from licenses of Stac's data compression technology to operating system vendors were $16.0 million in 1996, $16.8 million in 1995, and $5.5 million in 1994. In 1996 and 1995, royalty revenues were primarily from license agreements with Microsoft and IBM, who are obligated to continue paying royalties under those licenses at the rate of $4.0 million per quarter through December 1997. Royalty revenues in 1994 were primarily from license agreements with Microsoft and hardware OEMs. International revenues, which are included above, are primarily from sales of software products. International revenues were $4.8 million, or 10% of revenues in 1996, $4.8 million, or 10% of revenues in 1995, and $5.2 million, or 17% of revenues in 1994. International revenues were unchanged in 1996 from 1995 levels and decreased 8% in 1995 from 1994 due primarily to decreases in Stacker sales following the introduction of lossless disk compression in personal computer operating systems as discussed above. Stac markets and sells to its European accounts from its office in the United Kingdom and markets and sells to the other principal international markets through sales personnel in its San Diego office and through relationships with distributors and resellers abroad. GROSS MARGIN Cost of revenues consists primarily of Stac's proprietary design semiconductors, which are manufactured by third party foundries for resale by Stac, and of the user manuals, packaging, media and assembly associated with the Company's software products. Gross margins were 86% in 1996, 88% in 1995, and 84% in 1994. The decrease in 1996's gross margin from that of 1995 was due to the increase of Hi/fn semiconductor revenues as a percent of total revenue. Semiconductor revenues have a lower gross margin than software revenues. The increases in 1995's gross margin percent from that of 1994 was due primarily to increased royalty revenues as a percent of total revenues. RESEARCH AND DEVELOPMENT The cost of product development consists primarily of salaries, employee benefits, overhead, outside contractors and non-recurring engineering fees. Such expenses were $8.4 million for 1996, $7.2 million for 1995, and $5.6 million for 1994. The increases in product development in 1996 from that of 1995 and in 1995 from that of 1994 were due to the addition of personnel for development of new versions of ReachOut, development of the Company's Replica product line, development of CD-QuickShare in 1995, and amortization of capitalized research and development costs associated with the acquisition of ReachOut. The Company expects to continue to invest in the development of products for which it believes there is a need in the market. However, there can be no assurance that product development programs invested in by the Company will be successful or that products resulting from such programs will achieve market acceptance. Purchased research and development for 1996 includes $12.2 million recognized in connection with the October 1995 acquisition of California Software, Inc. and the related investment in DynaNet, 22. 23 Inc. Purchased research and development for 1995 includes $12.7 million related to the October 1994 acquisition of ReachOut from Ocean Isle Software and $0.7 million related to the March 1995 technology acquisition from Crossware Development Corporation and Rememory Corporation. SELLING AND MARKETING EXPENSE Selling and marketing expenses consist primarily of salaries and commissions of sales and marketing personnel, customer service, product technical support, consulting, advertising and promotion expenses and overhead. Such expenses were $12.9 million for 1996, $13.3 million for 1995, and $11.9 million for 1994. There was no significant change in marketing and sales expense in 1996 from that of 1995. The increase in 1995 spending from that of 1994 was due primarily to direct sales and marketing costs associated with the acquisition of ReachOut. In June 1995, in order to reduce costs, the Company closed its direct sales facility in Florida and consolidated its sales operations at the Company's San Diego headquarters. During 1996 the Company has invested in its sales organization in order to reach corporate and enterprise end users of storage management and communications products. To that end, the Company has hired sales staff to support direct sales and OEMs, resellers and solution provider organizations. The Company expects to continue to increase its spending on sales personnel and marketing programs in 1997 in association with the introduction of new and enhanced versions of ReachOut and Replica. As a result, consolidated sales and marketing expenses are expected to remain the Company's most significant ongoing operating expense. GENERAL AND ADMINISTRATIVE General and administrative expenses are comprised primarily of salaries for administrative and corporate services personnel, legal, and other professional fees. Such expenses were $4.4 million for 1996, $5.2 million for 1995, and $9.5 million for 1994. The decrease in 1996 expenses from those of 1995 was due to the inclusion in 1995 of a non-recurring expense of $1 million related to terminated acquisition activities. The decrease in 1995 expenses from those of 1994 was due to the settlement of patent litigation with Microsoft and the resulting decrease in legal expenses. The Company expects to hire additional management personnel in 1997 to manage operating activities of the Company and to manage software service business opportunities. As a result, consolidated general and administrative expenses are expected to increase in 1997 from the levels incurred in 1996. RESTRUCTURING CHARGES In May 1995 the Company closed its Florida direct sales facility and consolidated U.S. sales activities in its San Diego, California headquarters. In conjunction with the closure the Company recorded a restructuring charge to operations of $2.4 million. The principal components of the charge include $.6 million for lease termination and closure costs, $1.0 million for intangibles written down, $.5 million for losses on fixed asset disposals, and $.3 million for severance and employee related liabilities. INTEREST INCOME Interest income was $2.1 million in 1996, $2.0 million in 1995, and $1.2 million in 1994. The increase in interest income in 1996 over that of 1995 was due to interest earned on net positive cash flow from operations. The increase in interest income in 1995 over that of 1994 was due primarily to cash 23. 24 received from Microsoft's purchase of the Company's preferred stock in June 1994. The Company invests the majority of its funds in tax exempt securities. INCOME TAXES For 1996, the Company reported a provision income for taxes of $6.1 million on income before income taxes of $4.5 million. In 1996 the Company deducted purchased research and development of $12.2 million for which, consistent with statutory guidelines, no tax benefit was recognized. Prior to the purchased research and development, the effective tax rate for 1996 was 37%. For 1995 the Company recorded a tax benefit on pre-tax net income principally as the result of tax exempt interest earned on cash equivalents and marketable securities. For 1994 the effective tax rate was 31%. The effective tax rates for both 1996 and 1994 are lower than the statutory federal and state rates due primarily to tax exempt interest earned on cash equivalents and marketable securities. Differences in effective tax rates among years is also affected by the proportion of earnings from interest income and foreign operations to total earnings and the different statutory tax rates associated with them. QUARTERLY TRENDS AND CHANNEL INVENTORIES The Company historically has experienced significant fluctuations in its revenues and operating results, including net income, and anticipates that these fluctuations will continue. The Company operates with relatively little backlog of its software sales, and the majority of its software revenues each quarter result from orders received in that quarter. Consequently, if near-term demand for the Company's products weakens in a given quarter or if inventory of the Company's products in the retail and distribution channels satisfies near-term demand, the Company's operating results for that quarter would be adversely affected. In addition, when the Company announces enhanced versions of its software products, the announcement may have the effect of slowing sales of the current version of the product as buyers delay their purchase. Quarterly results have been or may in the future be influenced by the timing of announcements or introductions of new products and product upgrades by the Company or its competitors, distributor ordering patterns, product returns, delays in product development and licensing of the Company's products and core technology. Hi/fn's customers order semiconductor products to meet production schedules based on forecasts of demand for their products. Additionally, OEMs contract with third party manufacturers to build their products in large lot sizes to achieve manufacturing efficiencies. As a result of these practices, OEM semiconductor and finished product inventories can vary significantly depending on actual sales, the continuation of sales trends, and the timing of contractor manufacturing cycles with the result that demand for the Company's semiconductor products may have cyclical increases and decreases. SEASONALITY The software industry has typically experienced some seasonal variations in demand, with sales declining somewhat in the summer months. The Company believes that its software sales are subject to similar seasonal variations which, when combined with the other factors described above, are likely to result in fluctuations in the Company's quarterly results. As a result, historical quarter-to-quarter comparisons should not be relied upon as indicative of future performance. 24. 25 OPERATING SYSTEMS Stac's ReachOut and Replica products currently operate on a limited number of personal computer and network operating systems. ReachOut is compatible with Microsoft Windows 95, Windows 3.x and DOS, while Replica supports Novell NetWare servers. However, customer use of and demand for products that support Microsoft's Windows NT server and workstation operating systems is increasing. To respond to customer requests, the Company has most recently announced that it intends to have versions of its ReachOut and Replica products for Windows NT released by the end of December 1996 and the end of March 1997, respectively. At this time, the ReachOut NT product is in beta testing and is now expected to be released in the March 1997 quarter. The projected release date for Replica for NT has not changed. If the Company is unable to provide customers with products compatible with Windows NT, the Company's ability to market and sell ReachOut and Replica would be adversely affected. COMPETITION AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTIONS The market for the Company's products is intensely competitive. Increased competition could result not only in a decline in sales volume, but also in price reductions that could have a material adverse effect on the Company's business, operating results and financial condition. The Company's ReachOut product competes in the remote control software market against more established products such as Symantec Corporation's pcAnywhere, MicroCom, Inc.'s Carbon Copy and Traveling Software, Inc.'s Laplink. Symantec, MicroCom and Traveling Software are shipping versions of their remote control products that were introduced subsequent to ReachOut 6.0 and that include Windows NT support. ReachOut also competes against remote node products from companies such as Citrix, Inc. and Shiva Corporation. Further, Microsoft could elect to incorporate remote control or additional remote access capabilities into its operating systems which are pre-installed on most personal computers. The Company began shipping Replica back-up and disaster recovery software for Novell NetWare during the second quarter of fiscal 1996. Replica competes with well established back-up products from Cheyenne Software, Inc., recently purchased by Computer Associates, Inc., and Seagate Software, Inc. (owned by Seagate Technologies, Inc.), both of which have established channels of distribution and installed customer bases. Resellers could choose not to sell Replica over competitors' products with the result that significant sales of Replica could fail to materialize, or products similar to Replica could be successfully introduced to resellers by the Company's competitors. Also, Replica is being introduced into a sophisticated NetWare server environment. While the Company has invested significant resources in testing Replica under a variety of conditions, configurations and circumstances, there are likely to be environments which have not been anticipated for which additional development of Replica will be necessary. In addition, many enterprises operate in a mixed server environment which includes NetWare and Windows NT and requirements for client back-up support. While the Company intends to provide support for a mixed server environment and for client back-up, such versions will not be available until fiscal 1997. The Company's license agreement with IBM Corporation grants IBM the right to implement the Company's LZS data compression technology in IBM hardware and software products. Also, microprocessor and chip set suppliers, customers and others could seek to expand their product offerings 25. 26 by designing and selling products using competitive data compression or other technology that could render obsolete or adversely affect sales of the Company's semiconductor and LZS221 products. STOCK PRICE VOLATILITY Due to the factors noted above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in earnings from levels expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. Shortfalls could be caused by shortfalls in revenues, timing of the receipt of technology license fees, and/or increased levels of expenditures. Additionally, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's stock price. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and marketable securities increased by $4.8 million to $65.4 million at September 30, 1996 from that at September 30, 1995. The increase was primarily attributable to cash generated from operations offset by $11.2 million paid for the acquisition of California Software, Inc. and the related investment in DynaNet. Accounts receivable decreased by $0.6 million to $5.6 million at September 30, 1996 from that at September 30, 1995. Working capital increased by $3.3 million to $68.5 million at September 30, 1996 from that at September 30, 1995. During 1996 and 1995 the company paid $.2 million and $1.6 million, respectively, in dividends on its Series A Preferred Stock. The obligation to pay the preferred dividend terminated when the preferred stock was converted to common stock in November 1995. The Company believes that existing cash balances and funds provided by operations will be sufficient to finance its working capital requirements for the foreseeable future. 26. 27 Selected Quarterly Data (In thousands, except per share data)
Sept. 30, June 30, Mar. 31, Dec. 31, Fiscal 1996 1996 1996 1996 1995 - ------------------------------------- --------- -------- -------- -------- Revenues $ 12,234 $ 10,988 $ 12,236 $ 11,307 Gross margin 10,522 9,168 10,712 9,832 Income (loss) from operations 3,214 2,618 4,358 (7,838) Net income (loss) 2,527 1,916 3,062 (9,180) Net income (loss) per common share $ .08 $ .06 $ .10 $ (.33) Common stock price: High $ 11.25 $ 13.88 $ 14.50 $ 15.13 Low $ 6.88 $ 9.88 $ 8.75 $ 6.75
Sept. 30, June 30, Mar. 31, Dec. 31, Fiscal 1995 1995 1995 1995 1994 - ------------------------------------- -------- -------- -------- -------- Revenues $ 11,277 $ 11,196 $ 12,582 $ 10,749 Gross margin 9,913 9,935 11,142 9,438 Income (loss) from operations 4,017 908 3,294 (9,254) Net income (loss) 2,841 1,314 2,465 (5,124) Net income (loss) per common share $ 09 $ .03 $ .08 $ (.22) Common stock price: High $ 0.25 $ 8.13 $ 6.38 $ 6.75 Low $ 7.25 $ 5.38 $ 4.88 $ 4.25
As of December 11, 1996, there were 426 holders of record of the Company's common stock. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements at September 30, 1996 and 1995, and for each of the three fiscal years in the period ended September 30, 1996 and the Report of Price Waterhouse, Independent Accountants, are included in this report on pages F-1 through F-17. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27. 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to Registrant's Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the 1997 Annual Meeting (the "Proxy Statement") under the headings "Nominees" and "Background of Executive Officers not Described Above." ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Proxy Statement under the heading "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the Proxy Statement under the heading "Certain Transactions." 28. 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of the report:
Page Number ------ (1) Report of Independent Accountants F-1 Consolidated Balance Sheet at September 30, 1996 and 1995 F-2 Consolidated Statement of Operations for Fiscal 1996, 1995 and 1994 F-3 Consolidated Statement of Cash Flows for Fiscal 1996, 1995 and 1994 F-4 Consolidated Statement of Stockholders' Equity for Fiscal 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 (2) Schedule I -- Marketable Securities S-1 All other schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Financial Statements or notes thereto.
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of the fiscal year ended September 30, 1996. (c) Exhibits
Exhibit Exhibit Footnote Number Description - ------------------------------------------------------------------------------- 2.1 Agreement and Plan of Merger, dated April 5, 1996, between the Registrant and Stac, Inc., a California corporation. 3.1 Certificate of Incorporation of the Registrant. 3.2 Bylaws of the Registrant. 4.1 Reference is made to Exhibits 3.1, 3.2, 10.8, 10.9, 10.10 and 10.12. (1) 10.1 Form of Indemnity Agreement entered into between the Registrant and its directors and officers with related schedule.
29. 30 (1)(7) 10.2 Registrant's 1992 Stock Option Plan (the "1992 Plan"). (5)(7) 10.3 Registrant's 1992 Non-Employee Directors' Plan, as amended (the "Directors' Plan"). (1)(7) 10.4 Registrant's Employee Stock Purchase Plan and related offering document. (1) 10.5 Securities Purchase Agreement, dated as of March 27, 1990, among the Registrant and the other persons named therein. (1) 10.6 Distributor Agreement, between the Registrant and Merisel, Inc., dated as of March 1, 1991. (1) 10.7 Distributor Agreement, between the Registrant and Ingram Micro, Inc., dated as of March 13, 1991. (3) 10.8 License Agreement, between the Registrant and Microsoft Corporation, dated as of June 20, 1994. (5)(7) 10.9 Forms of Non-statutory Stock Option Agreements under the Directors' Plan. (6) 10.10 Stock Purchase Agreement dated October 6, 1995 between the Registrant and William T. Baker. (6) 10.11 Option Purchase Agreement dated October 6, 1995 among the Registrant and Certain Holders of Options to Purchase Common Stock of California Software, Inc. (6) 10.12 Indemnity Agreement dated October 6, 1995 between the Registrant and William T. Baker. (6) 10.13 Series A Preferred Stock Purchase Agreement dated October 6, 1995 by and between DynaNet, Inc. and the Registrant. 10.14 Office Lease date March 22, 1994 between the Registrant and Weyerhaeuser Mortgage Company and Fort Wyman, Inc. 10.15 Office Lease date March 22, 1994 between the Registrant and Weyerhaeuser Mortgage Company and Fort Wyman, Inc. 10.16 Office Lease dated July 12, 1994 between the Registrant and Weyerhaeuser Mortgage Company and Fort Wyman, Inc.
30. 31 10.17 Amendment No. 1 to the Office Lease dated July 12, 1994 between the Registrant and Weyerhaeuser Mortgage Company and Fort Wyman, Inc. 10.18 Amendment No. 2 to the Office Lease dated July 12, 1994 between the Registrant and Weyerhaeuser Mortgage Company and Fort Wyman, Inc. 11.1 Calculation of net income (loss) per share. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Price Waterhouse LLP. 24.1 Power of Attorney. Reference is made to page 32. - -------------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-46389) or amendments thereto and incorporated herein by reference. (2) Certain confidential portions deleted pursuant to Order Granting Application Under the Securities Act of 1933, as amended, and Rule 406 thereunder respecting Confidential Treatment dated May 6, 1992. (3) Filed as exhibit to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1994, as amended. (4) Certain confidential portions deleted pursuant to order Granting Application for Confidential Treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 dated October 21, 1994. (5) Filed as exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. (6) Filed as an exhibit to the Company's Report on Form 8-K filed on October 16, 1995, relating to the Company's (i) acquisition of all of the outstanding capital stock and options to purchase the capital stock of California Software, Inc. and (ii) acquisition of Series A Preferred Stock of DynaNet, Inc. (7) Indicates management or compensatory plan or arrangement required to be identified pursuant to Item 14(a)(3). 31. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STAC, INC. By: /s/ Gary W. Clow ------------------------------------ Gary W. Clow Chairman of the Board, President and Chief Executive Officer Date: December 20, 1996 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary W. Clow and John R. Witzel, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof. 32. 33 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 dates indicated.
Signature Title Date --------- ----- ---- /s/ Gary W. Clow Chairman of the Board, December 20, 1996 - -------------------------------------- President and Chief (Gary W. Clow) Executive Officer (Principal executive officer) /s/ John R. Witzel Vice President of Finance, December 20, 1996 - -------------------------------------- Chief Financial Officer and (John R. Witzel) Secretary (principal financial and accounting officer) /s/ Douglas L. Whiting, Ph.D. Vice President of December 20, 1996 - -------------------------------------- Technology and Director (Douglas L. Whiting, Ph.D.) /s/ Charles H. Gaylord, Jr. Director December 20, 1996 - ------------------------------------ (Charles H. Gaylord, Jr.) /s/ Joseph W. Jennings Director December 20, 1996 - ------------------------------------ (Joseph W. Jennings) /s/ Robert W. Johnson Director December 20, 1996 - ------------------------------------ (Robert W. Johnson) /s/ Russell Robelen Director December 20, 1996 - ------------------------------------ (Russell Robelen)
33. 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Stac, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of Stac, Inc. and its subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Diego, California October 25, 1996 F-1. 35 STAC, INC. CONSOLIDATED BALANCE SHEET (In thousands, except share and per share amounts)
SEPTEMBER 30, ------------------------------ 1996 1995 --------- ---------- ASSETS Current assets: Cash and cash equivalents $ 35,942 $ 34,696 Marketable securities 29,463 25,867 Accounts receivable 5,577 6,226 Income taxes receivable - 251 Inventories 754 484 Deferred income taxes 979 1,484 Prepaid expenses and other current assets 232 119 ---------- ---------- Total current assets 72,947 69,127 Property and equipment, net 3,673 3,455 Deferred income taxes 6,322 6,668 Other assets 748 1,361 ---------- ---------- $ 83,690 $ 80,611 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,389 $ 1,007 Income taxes payable 390 - Accrued expenses and other current liabilities 2,670 2,934 ---------- ---------- Total current liabilities 4,449 3,941 Other liabilities 242 315 ----------- ---------- 4,691 4,256 ----------- ---------- Commitments and contingencies (Notes 7 and 9 ) Series A mandatorily redeemable cumulative convertible preferred stock, no par value; 444 shares authorized, issued, and outstanding in 1995; redemption and liquidation value of $90,000 per share. - 39,960 ------------ ---------- Common stock and other shareholders' equity: Common stock, no par value; 100,000,000 shares authorized; 30,687,000 and 25,671,000 shares issued and outstanding in 1996 and 1995, respectively 73,547 29,101 Cumulative translation adjustment (118) (119) Retained earnings 5,570 7,413 ----------- ---------- Total common stock and other shareholders' equity 78,999 36,395 ----------- ---------- $ 83,690 $ 80,611 =========== ==========
See accompanying notes to consolidated financial statements. F-2. 36 STAC, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In thousands except per share amounts)
YEAR ENDED SEPTEMBER 30 ----------------------------------------------------- 1996 1995 1994 --------- --------- ---------- Revenues $ 46,765 $ 45,804 $ 31,325 Cost of revenues 6,531 5,376 5,018 ----------- ---------- ---------- Gross margin 40,234 40,428 26,307 Research and development 8,356 7,212 5,594 Purchased research and development 12,217 13,354 - Sales and marketing 12,923 13,268 11,933 General and administrative 4,386 5,201 9,530 Restructuring - 2,428 - ------------- ---------- ------------ Operating income (loss) 2,352 (1,035) (750) Interest income 2,115 1,983 1,234 ---------- ---------- ---------- Income before income taxes 4,467 948 484 Provision for (benefit from) income taxes 6,142 (548) 151 ---------- ---------- ----------- Net income (loss) (1,675) 1,496 333 Less preferred dividends 168 1,598 449 ---------- ---------- ----------- Net loss available for common shareholders' $ (1,843) $ (102) $ (116) ========= ========== =========== Net loss per common share, primary $ (0.06) $ 0.00 $ 0.00 Net loss per common share, fully diluted $ (0.05) $ 0.00 $ 0.00 Weighted average common shares outstanding, primary 30,068 25,391 24,643 Weighted average common shares outstanding, fully diluted 30,585 25,391 24,643
See accompanying notes to consolidated financial statements. F-3. 37 STAC, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
YEAR ENDED SEPTEMBER 30, ------------------------------- ------------ 1996 1995 1994 ----------- ---------- --------- Cash flows from operating activities: Net income (loss) $ (1,675) $ 1,496 $ 333 Adjustments required to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,945 2,289 1,249 Purchased research and development 12,217 13,354 - Non-cash restructuring charges - 1,489 - Deferred stock compensation 91 154 194 (Gain) loss on disposals of fixed assets (14) 79 - Provision (benefit) for deferred income taxes 851 (6,274) (262) Changes in assets and liabilities, net of business acquisitions: Accounts receivable 649 (864) 523 Income taxes receivable 251 327 2,200 Inventories (270) 245 (60) Prepaid expenses and other current assets (113) 409 (99) Other assets 11 96 (44) Accounts payable 382 (971) (1,161) Income taxes payable 390 - - Accrued expenses and other current liabilities (264) 730 99 ---------- ---------- -------- Net cash provided by operating activities 14,451 12,559 2,972 --------- --------- ------- Cash flows from investing activities: Purchases of marketable securities (35,333) (24,612) (52,943) Sales of marketable securities 31,737 59,404 15,679 Acquisitions, net of cash acquired (11,252) (18,860) - Purchases of property and equipment (1,547) (2,225) (1,789) --------- --------- -------- Net cash (used) provided by investing activities (16,395) 13,707 (39,053) -------- -------- ------- Cash flows from financing activities: Issuance of common stock, net 1,336 951 724 Tax benefits from exercise of stock options 1,853 730 568 Issuance of preferred stock, net - - 39,928 Preferred stock dividends - (1,598) (449) ------------ --------- --------- Net cash provided by financing activities 3,189 83 40,771 ---------- ----------- -------- Effect of exchange rate changes on cash 1 6 38 ------------ ------------ --------- Net increase in cash and cash equivalents 1,246 26,355 4,728 Cash and cash equivalents at beginning of period 34,696 8,341 3,613 ---------- ----------- -------- Cash and cash equivalents at end of period $ 35,942 $ 34,696 $ 8,341 ========== ========== ========
F-4. 38 Supplemental disclosures of cash flow information: Net cash paid (refunds received) for income taxes $ 2,797 $ 4,674 $ (2,396) Supplemental non-cash activities: Conversion of preferred stock to common stock 39,960 - - Issuance of common stock for business acquisitions 965 - - Issuance of preferred stock dividends in common stock 168 - - Conversion of deferred compensation to equity upon exercise of common stock options 164 137 492
See accompanying notes to consolidated financial statements. F-5. 39 STAC, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
RETAINED COMMON STOCK CUMULATIVE EARNINGS -------------------------- TRANSLATION (ACCUMULATED SHARES AMOUNT ADJUSTMENT DEFICIT) TOTAL ------------- ---------- ---------- ----------- --------- Balance at September 30, 1993 24,284 $ 25,501 $ (163) $ 7,663 $ 33,001 Accretion of preferred stock - - - (32) (32) Dividends paid on preferred stock - - - (449) (449) Issuance of common stock upon exercise of options 765 1,060 - - 1,060 Issuance of common stock under Employee Stock Purchase Plan 47 154 - - 154 Tax benefits from exercise of stock options - 568 - - 568 Equity adjustment from foreign currency translation - - 38 - 38 Net income - - - 333 333 ------ -------- -------- -------- -------- Balance at September 30, 1994 25,096 27,283 (125) 7,515 34,673 Dividends paid on preferred stock - - - (1,598) (1,598) Issuance of common stock upon exercise of options 518 817 - - 817 Issuance of common stock under Employee Stock Purchase Plan 57 271 - - 271 Tax benefits from exercise of stock options - 730 - - 730 Equity adjustment from foreign currency translation - - 6 - 6 Net income - - - 1,496 1,496 ------ ------- -------- -------- -------- Balance at September 30, 1995 25,671 29,101 (119) 7,413 36,395 Conversion of preferred stock 4,440 39,960 - - 39,960 Dividends paid on preferred stock 19 168 - (168) - Issuance of common stock for business acquisitions 105 965 - - 965 Issuance of common stock upon exercise of options 412 1,204 - - 1,204 Issuance of common stock under Employee Stock Purchase Plan 40 296 - - 296 Tax benefits from exercise of stock options - 1,853 - - 1,853 Equity adjustment from foreign currency translation - - 1 - 1 Net loss - - - (1,675) (1,675) ------ -------- ------- -------- -------- Balance at September 30, 1996 30,687 $ 73,547 $ (118) $ 5,570 $ 78,999 ====== ======== ======== ========= ========
See accompanying notes to consolidated financial statements. F-6. 40 STAC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business Stac, Inc. (the "Company") designs, develops, markets and supports networking technologies, systems management software and applications for the storage and communication of data for personal computers and computer networks. The Company was incorporated in February of 1983. Consolidation The financial statements as of and for the years ended September 30, 1996 and 1995 consolidate the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Financial Statement Preparation The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make 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 could differ from those estimates. Revenue Recognition Revenue from the sale of software is generally recognized upon shipment, net of an allowance for estimated returns. Recognition of software revenue is deferred when, in management's opinion, quantities of such products in the distribution channel are above levels considered appropriate. Revenue from the sale of semiconductors and board products is recognized upon shipment. Royalty revenue and revenue from the licensing of software and technology developed by the Company is recognized pursuant to the terms of the underlying agreements. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. F-7. 41 Marketable Securities Marketable securities are classified according to the provisions of Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." These investments are comprised of funds on deposit with a liquid asset manager that have been invested principally in municipal bonds. The carrying amount of these investments approximates fair value due to the short maturities or demand nature of the instruments. At September 30, 1996, all marketable securities are classified as available-for-sale and carried at fair value. Unrealized gains or losses at September 30, 1996 and 1995 are not material. Inventories Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market. Property and Equipment Property and equipment are stated at cost. Additions to property and equipment, including significant betterments and renewals, are capitalized. Maintenance and repair costs are charged to expense as incurred. Depreciation is computed using the straight-line method over estimated useful lives of three to five years and totals $1,343,000, $1,501,000 and $1,071,000 in fiscal 1996, 1995 and 1994, respectively. Leasehold improvements are amortized over the shorter of the asset life or lease term. Research and Development Expenditures for research and development are charged to expense as incurred. Financial accounting rules requiring the capitalization of certain software development costs have not materially affected the Company. Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the Company will adopt prospectively as required in fiscal 1997. Pursuant to this Statement, companies are required to investigate potential impairments of long-lived assets, certain intangibles, and associated goodwill, on an exception basis, when there is evidence that events or changes in circumstances have made recovery of an asset's carrying value unlikely. An impairment loss would be recognized when the sum of the expected future net cash flows is less than the carrying amount of the asset. The adoption of FAS 121 is not expected to have significant impact on the Company's financial position or results of operations. F-8. 42 Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (FAS) No. 123, "Accounting for Stock-Based Compensation." FAS 123 will be adopted by the Company as required for its fiscal 1997 financial statements and is not expected to have a material effect on the Company's financial position or results of operations. Upon adoption of FAS 123, the Company will continue to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and will provide pro forma disclosures of net income and earnings per share as if the fair value- based method prescribed by FAS 123 had been applied in measuring compensation expense. Advertising Expenditures for advertising costs are charged to expense as incurred and total $1,758,000, $2,169,000 and $1,808,000 in fiscal 1996, 1995 and 1994, respectively. Income Taxes Income taxes are computed under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax liability or asset, net of valuation allowance, is established for the expected future consequences resulting from the differences between the financial reporting and income tax bases of assets and liabilities and from net operating loss and credit carryforwards. Deferred income tax expense or benefit represents the net change during the year in the deferred income tax liability or asset. Net Loss Per Common Share Net loss per share has been computed by dividing net income, after reduction for preferred dividends, by the weighted average number of common shares outstanding. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted average exchange rates during the period for revenues and expenses. Gains and losses from translation are excluded from results of operations and accumulated as a separate component of shareholders' equity. F-9. 43 Diversification of Credit Risk The Company's policy is to place its cash, cash equivalents and marketable securities with high credit, quality financial institutions and to limit the amount of credit exposure. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentations. NOTE 2 -- BUSINESSES ACQUIRED AND NON-RECURRING CHARGES In October 1995 the Company acquired the outstanding stock of California Software, Inc. (CSI) for $9,252,000 in cash net of liabilities assumed, and $965,000 in Stac common stock in a transaction accounted for under the purchase method. In conjunction with the acquisition, the Company made an additional $2,000,000 investment in the Series A Preferred Stock of DynaNet, Inc. (DynaNet), a start up entity founded by the principal of CSI. The Company has accounted for its investment in DynaNet as an addition to the purchase price of CSI due to the lack of in place technology or operating activity at DynaNet, consistent with its start up status. As a result of these transactions the Company recorded a one time charge to earnings of $12,217,000 for purchased research and development. Because of the underlying tax attributes of these transactions, the Company did not recognize an accompanying tax benefit associated with this one time charge to earnings. In October 1994 the Company acquired the assets of Ocean Isle Software, Limited Partnership (Ocean Isle) for $19,100,000 in cash plus the assumption of certain liabilities in a transaction accounted for under the purchase method. In conjunction with the acquisition, the Company recorded a one time charge to operations of $12,700,000 for purchased research and development. The Company also recorded $3,029,000 as capitalized software and other intangible assets which are being amortized on a straight-line basis over a three year period. In March 1995 the Company acquired the assets of Crossware Development Corporation and Rememory Corporation for $654,000 in cash in a transaction also accounted for under the purchase method. In conjunction with this acquisition, the Company recorded a one time charge to operations for the full $654,000 acquisition cost as purchased research and development. In May 1995 the Company closed its Florida facility (formerly the offices of Ocean Isle), consolidating to its San Diego, California headquarters. In conjunction with the closure the Company recorded a restructuring charge to operations of $2,428,000. The principal components of the charge include $594,000 for lease termination and closure costs, $986,000 for intangibles written down, $504,000 for losses on fixed asset disposals, and $344,000 for severance and employee related liabilities. F-10. 44 NOTE 3 -- COMPOSITION OF CERTAIN CONSOLIDATED FINANCIAL STATEMENT CAPTIONS (TABLE AMOUNTS IN THOUSANDS):
SEPTEMBER 30, ----------------------- 1996 1995 -------- ------- Accounts receivable: Trade receivables $ 5,904 $ 7,088 Less allowance for doubtful accounts (327) (862) -------- ------- $ 5,577 $ 6,226 ======== =======
Substantially all of the Company's customers are microcomputer hardware and software distributors and resellers, which results in concentrated credit risk with respect to the Company's trade receivables. Management believes that its credit policies substantially mitigate such concentrated credit risk. Bad debt expenses were $211,000 and $120,000 in fiscal 1996 and fiscal 1995, and insignificant in fiscal 1994.
SEPTEMBER 30, ----------------------- 1996 1995 -------- ------- Inventories: Raw materials $ 88 $ 141 Finished goods 666 343 -------- ------- $ 754 $ 484 ======== =======
SEPTEMBER 30, ----------------------- 1996 1995 -------- ------- Property and equipment: Computer equipment $ 4,919 $ 3,761 Leasehold improvements 1,297 1,127 Office equipment 1,178 959 Furniture and fixtures 1,013 895 Vehicles 51 19 -------- ------- 8,458 6,761 Less accumulated depreciation (4,785) (3,306) -------- ------- $ 3,673 $ 3,455 ======== =======
SEPTEMBER 30, ----------------------- 1996 1995 -------- ------- Accrued expenses and other current liabilities: Customer support and upgrade accruals $ 1,052 $ 626 Compensation and employee benefits 971 670 Promotional accruals 204 462 Advanced royalty payment - 667 Other 443 509 -------- ------- $ 2,670 $ 2,934 ======== =======
F-11. 45
SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 ---------- --------- --------- Revenues: Software, semiconductors and board products $ 30,765 $ 28,998 $ 25,171 Royalties and licenses 16,000 16,806 6,154 ---------- --------- --------- $ 46,765 $ 45,804 $ 31,325 ========== ========= =========
NOTE 4 -- MANDATORILY REDEEMABLE PREFERRED STOCK: On November 7, 1995 Stac's Series A Mandatorily Redeemable Preferred Stock held by Microsoft Corporation converted into 4,459,000 shares of Stac common stock pursuant to the provisions of the preferred stock agreement as a result of Stac's common stock maintaining a price per share in excess of $9.00 for twenty consecutive trading days. Preferred dividends of $168,000 and $1,598,000 were paid during fiscal 1996 and fiscal 1995, respectively. NOTE 5 -- INCOME TAXES: Deferred income taxes are comprised of the following:
SEPTEMBER 30, ----------------------------- 1996 1995 --------- ------- Deferred tax assets $ 7,850 $ 8,758 Deferred tax liabilities (549) (606) ------- ------- $ 7,301 $ 8,152 ======= =======
The principal components of deferred income taxes are as follows:
SEPTEMBER 30, ----------------------------------- 1996 1995 ------------- ----------- Revenue recognition for tax purposes $ 391 $ 806 Bad debts allowance 142 330 Inventory valuation accounts 246 184 Depreciation 197 214 Purchased research and development 6,050 6,352 Other 275 266 -------- ------- $ 7,301 $ 8,152 ======== =======
F-12. 46 Components of pre-tax income are as follows:
YEAR ENDED SEPTEMBER 30, -------------------------------------- 1996 1995 1994 -------- -------- -------- Domestic $ 4,591 $ 1,098 $ 684 Foreign (124) (150) (200) -------- -------- -------- $ 4,467 $ 948 $ 484 ======== ======== ========
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30, -------------------------------------- 1996 1995 1994 -------- -------- -------- Current tax expense Federal $ 3,972 $ 4,481 $ 395 State 1,319 1,245 18 -------- -------- -------- 5,291 5,726 413 -------- -------- -------- Deferred tax expense (benefit) Federal 683 (4,860) (235) State 168 (1,414) (27) -------- -------- -------- 851 (6,274) (262) -------- -------- -------- $ 6,142 $ (548) $ 151 ======== ======== ========
A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes follows:
YEAR ENDED SEPTEMBER 30, -------------------------------------- 1996 1995 1994 -------- -------- -------- Amount computed at statutory Federal rate of 34% $ 1,519 $ 322 $ 165 State income taxes, net of Federal benefit 268 57 30 Expenses not deductible for tax purposes 4,949 122 99 Differentials from foreign operations 42 51 73 Tax credits (12) (155) (28) Foreign sales corporation benefit - (54) - Tax exempt interest (715) (672) (392) Revision of prior year's tax estimates 33 (249) 132 Other 58 30 72 -------- -------- -------- $ 6,142 $ (548) $ 151 ======== ======== ========
F-13. 47 NOTE 6 -- STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS: 1992 Stock Option Plan In March 1992, the Company adopted a Stock Option Plan (the "1992 Plan"), which provides for the granting of incentive stock options and non-qualified stock options to purchase up to 5,000,000 shares of the Company's common stock. The 1992 Plan is administered by the Compensation Committee of the Board of Directors and provides for options for the purchase of the Company's common stock to be granted to employees, officers and consultants of the Company at prices that are not less than 100% and 50% of the estimated fair market value of the related shares at the date of grant for incentive stock options and non-qualified stock options, respectively. Options vest as determined by the Compensation Committee. The maximum term of options granted under the 1992 Plan is ten years. 1992 Non-Employee Directors' Stock Option Plan In March 1992, the Company adopted the 1992 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), as amended in February 1995, which provides for the automatic granting of non-qualified stock options to purchase up to 400,000 shares, as amended, of the Company's common stock. The 1992 Plan is administered by the Board of Directors and provides for options for the purchase of the Company's common stock to each director of the Company (or an affiliate of the Company) who is not otherwise employed by the Company (or an affiliate of the Company) Such directors will automatically be granted an option to purchase common stock upon election to the Board and on each anniversary of that date thereafter so long as the director continues to serve on the Board. Vesting periods are five years for initial options granted, and four years for options granted in re-election years. The maximum term of options granted under the Directors' Plan is ten years. Combined information for all stock option activities for fiscal 1996, 1995, and 1994 is summarized below:
OPTIONS OUTSTANDING ------------------------------------- EXERCISE SHARES PRICE PER SHARE ---------- ----------------- Balance at September 30, 1993 2,146,958 $ .025 $5.125 Options granted 969,500 2.75 6.75 Options exercised (764,716) .025 4.75 Options canceled (209,651) .25 6.375 ---------- Balance at September 30, 1994 2,142,091 .025 6.75 Options granted 1,129,500 5.125 9.375 Options exercised (478,513) .025 6.375 Options canceled (687,143) .25 6.00 ---------- Balance at September 30, 1995 2,105,935 .125 9.375
F-14. 48 Options granted 785,000 7.875 13.25 Options exercised (413,739) .125 6.75 Options canceled (239,277) .25 12.375 ----------- Balance at September 30, 1996 2,237,919 $ .125 $13.25 ===========
The average exercise price of outstanding options at September 30, 1996 was $5.82 per share. There was an aggregate of 866,779 shares subject to unexercised vested options and there were 2,770,646 shares available for future grant at September 30, 1996 Employee Stock Purchase Plan In March 1992, the Company adopted the Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 1,000,000 shares of the Company's common stock. The current offering under the Purchase Plan terminates on September 30, 1997. The Purchase Plan is administered by the Board of Directors and allows participating employees to have up to 15% of their earnings withheld and used to purchase shares of common stock on specified dates. The price of the common stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the common stock at the commencement date or the relevant purchase date. During fiscal 1996, shares totaling 20,599 and 19,879 were issued under the Plan at prices of $7.76 and $6.80, per share, respectively. At September 30, 1996, 758,881 shares were reserved for future issuance. 401(k) Plan In July 1991 the Company adopted an employee savings and retirement plan (the "401(k) Plan") covering all of the Company's employees. The 401(k) Plan permits, but does not require matching contributions by the Company on behalf of all participants. No such contributions were made during fiscal 1996, 1995 or 1994. NOTE 7 -- COMMITMENTS: The Company occupies its facilities under several non-cancelable operating leases that expire at various dates through March 2000, and which contain renewal options. Future minimum lease payments are as follows:
AMOUNT ------- 1997 $ 631,000 1998 603,000 1999 606,000 2000 252,000 Thereafter - ------------ $ 2,092,000 ============
F-15. 49 Rent expense under all operating leases was approximately $566,000, $1,074,000, and $679,000, in fiscal 1996, 1995, and 1994, respectively. Certain facilities leases provide for scheduled rent increases. The total lease commitment for such leases is being charged ratably to operations. NOTE 8 -- SIGNIFICANT CUSTOMERS, BUSINESS SEGMENTS AND FOREIGN OPERATIONS: A significant portion of the Company's revenues has been derived from technology licenses and sales to major distributors or resellers as follows: One customer accounted for 26% of fiscal 1996 revenues. Two customers accounted for 26% and 11%, respectively, of fiscal 1995 revenues. Two customers accounted for 16% and 11%, respectively, of fiscal 1994 revenues. The Company classifies its operating activity into two principal business segments. Stac Software develops, markets and supports a range of systems management software which is sold and licensed through distribution, retail, original equipment manufacturer, and direct channels. Hi/fn (formerly the Technology Business Unit) develops and markets semiconductor and software libraries which implement the Company's data compression technology and industry standards for data encryption. Condensed financial information related to the Company's business segments is as follows:
Stac Software: 1996 1995 1994 ------------- --------- --------- --------- Revenues $ 33,871 $ 38,462 $ 25,659 Operating loss $ (1,026) $ (3,331) $ (1,338) Identifiable assets $ 4,863 $ 5,816 $ 1,899
Hi/fn: 1996 1995 1994 ----- -------- ------- -------- Revenues $ 12,894 $ 7,342 $ 5,666 Operating income $ 3,378 $ 2,296 $ 588 Identifiable assets $ 2,120 $ 2,148 $ 1,151
Segment operating results reflect general corporate expense allocations. Identifiable assets consist of accounts receivable, inventories, capitalized software and other intangible assets. All other assets are either corporate in nature, are not identifiable with particular segments or are not material. Capital expenditures and depreciation are not identified as to industry segments for similar reasons. In fiscal 1996, 1995 and 1994, international revenues were $4,766,000, $4,799,000 and $5,220,000, respectively, consisting primarily of sales to customers in Canada, Europe and the Pacific Rim. F-16. 50 Condensed financial information related to the Company's wholly-owned foreign subsidiaries is as follows:
1996 1995 1994 -------- -------- ---------- Revenues $ 2,893 $ 3,183 $ 3,480 Operating income (loss) $ 677 $ (270) $ (381) Identifiable assets $ 1,010 $ 977 $ 1,257
NOTE 9 -- LITIGATION: A shareholder class action complaint originally filed in the United States District Court for the Southern District of California in July 1992 has been dismissed by the U.S. District Court, which dismissal has been upheld by the Appellate Court. Plaintiffs in the suit have asked the U.S. Supreme Court to review the Appellate Court decision. The suit alleges violations of the federal securities laws by the Company and certain of its Directors related to the Company's May 7, 1992 prospectus. The suit was purportedly brought on behalf of all persons who purchased the Company's common stock during the period May 7, 1992 through July 19, 1992, inclusive and seeks compensatory damages in unspecified amounts and other relief. The Company and the individual defendants have vigorously defended against the actions. Although the final outcome of litigation cannot be predicted with certainty, based upon their present understanding of the law and the facts, management and the individual defendants believe that they have meritorious defenses to the claims alleged. Based on the foregoing, management believes that the final outcome of the lawsuit will not have a material adverse effect on the financial condition or results of operations of the Company. F-17. 51 STAC, INC. SCHEDULE I - MARKETABLE SECURITIES AT SEPTEMBER 30, 1996 (IN THOUSANDS)
NAME OF ISSUER PRINCIPAL MARKET CARRYING TITLE OF ISSUE AMOUNT COST VALUE(a) VALUE(a) - -------------- ---------- ------ --------- -------- InterCap Insd Municipal $2,000 $2,000 $2,006 $2,005 Bond Tr Nevada St G/O 1,000 1,026 1,032 1,032 RFDG #3 Delaware State G/O 500 507 510 510 Ser B Marietta GA Hsg Auth 2,000 2,000 2,015 2,015 Mfhr Fall Harrisonburg VA Redev & Hsg 2,000 2,000 2,011 2,011 Auth Mfhr Detroit MI 2,700 2,752 2,793 2,791 Distr ST Aid LeHigh Cty PA 2,000 2,176 2,160 2,162 Gen Revs Hsp Miami FLA 1,000 1,087 1,101 1,104 Hlth Facs Cedar Miami FLA 1,000 1,089 1,104 1,106 Hlth Facs Cedar Houston TX Wtr & 2,000 2,170 2,161 2,185 Swr Pr Hawaii State G/O 1,000 1,001 1,010 1,008 RFDG SER CC Cypress Fairbanks TX 2,000 1,878 1,887 1,892 G/O Knox Cty Tenn 1,650 1,737 1,750 1,763 Ser B Pre-Re Penn St GO 1,000 1,078 1,062 1,081 2nd Ser A Pre-Re Distr Columbia 1,000 1,074 1,058 1,076 GO Ser B Fairfax Cnty VA G/O 1,000 1,009 1,024 1,022 Illinois State G/O 1,600 1,738 1,764 1,759
S-1. 52 Scocorro Tex Indp Sch 750 776 780 778 Dst RFD Pima Cty AZ 2,000 2,149 2,154 2,163 Sch Tucson AZ ------------- ------------- ------------- ------------- Total $28,200 $29,247 $29,382 $29,463 ------------- ------------- ------------- -------------
(a) Includes accrued interest S-2. EX-2.1 2 EXHIBIT 2.1 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger Agreement") is made as of April 5, 1996, by and between Stac, Inc., a California corporation ("Stac California"), and Stac, Inc., a Delaware corporation ("Stac Delaware"). Stac California and Stac Delaware are sometimes referred to as the "Constituent Corporations." The authorized capital stock of Stac California consists of one hundred ten million (110,000,000) shares, of which one hundred million (100,000,000) shares are designated Common Stock, no par value, and ten million (10,000,000) shares are designated Preferred Stock, no par value. The authorized capital stock of Stac Delaware consists of one hundred million (100,000,000) shares of Common Stock, $.001 par value, and ten million (10,000,000) shares of Preferred Stock, $.001 par value per share. The directors of the Constituent Corporations deem it advisable and to the advantage of said corporations that Stac California merge into Stac Delaware upon the terms and conditions herein provided. Following the Merger (as defined below) the subsidiaries of Stac California shall be the subsidiaries of Stac Delaware. NOW, THEREFORE, the parties do hereby adopt the plan of reorganization encompassed by this Merger Agreement and do hereby agree that Stac California shall merge into Stac Delaware on the following terms, conditions and other provisions: 1. TERMS AND CONDITIONS 1.1 MERGER. Stac California shall be merged with and into Stac Delaware (the "Merger"), and Stac Delaware shall be the surviving corporation (the "Surviving Corporation") effective at 10:00 a.m. (Pacific Daylight Time) on April 9, 1996 (the "Effective Time"). 1.2 SUCCESSION. At the Effective Time, Stac Delaware shall continue its corporate existence under the laws of the State of Delaware, and the separate existence and corporate organization of Stac California, except insofar as it may be continued by operation of law, shall be terminated and cease. 1.3 TRANSFER OF ASSETS AND LIABILITIES. At the Effective Time, the rights, privileges, powers and franchises, both of a public as well as of a private nature, of each of the Constituent Corporations shall be vested in and possessed by the Surviving Corporation, subject to all of the disabilities, duties and restrictions of or upon each of the Constituent Corporations; and all and singular rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, of each of the Constituent Corporations, and all debts due to each of the Constituent Corporations on whatever account, and all things in action or belonging to each of the Constituent Corporations 1. 2 shall be transferred to and vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest, shall be thereafter the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise in either of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger; provided, however, that the liabilities of the Constituent Corporations and of their shareholders, directors and officers shall not be affected and all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, and any claim existing or action or proceeding pending by or against either of the Constituent Corporations may be prosecuted to judgment as if the Merger had not taken place except as they may be modified with the consent of such creditors and all debts, liabilities and duties of or upon each of the Constituent Corporations shall attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. 1.4 COMMON STOCK OF STAC CALIFORNIA AND STAC DELAWARE. At the Effective Time, by virtue of the Merger and without any further action on the part of the Constituent Corporations or their shareholders, (i) each share of Common Stock of Stac California issued and outstanding immediately prior thereto shall be changed and converted into one fully paid and nonassessable share of Common Stock of Stac Delaware; and (ii) each share of Common Stock of Stac Delaware issued and outstanding immediately prior thereto shall be canceled and returned to the status of authorized but unissued shares. 1.5 STOCK CERTIFICATES. At and after the Effective Time, all of the outstanding certificates which prior to that time represented shares of the Common Stock of Stac California shall be deemed for all purposes to evidence ownership of and to represent the shares of Stac Delaware into which the shares of Stac California represented by such certificates have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agents. The registered owner of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Stac Delaware evidenced by such outstanding certificate as above provided. 1.6 OPTIONS OF STAC CALIFORNIA. At the Effective Time, the Surviving Corporation will assume and continue all of Stac California's stock option plans in existence at the Effective Time, including without limitation all options outstanding under such stock option plans and any other outstanding options, shall become options to purchase the same number of shares of Common Stock of Stac Delaware, with no other changes in the terms and conditions of such options. Effective at the Effective Time, Stac Delaware hereby assumes the outstanding and unexercised portions of such options and the obligations of Stac California with respect thereto. 1.7 EMPLOYEE BENEFIT PLANS. At the Effective Time, the Surviving Corporation shall assume all obligations of Stac California under any and all employee benefit plans in effect as of 2. 3 the Effective Time with respect to which employee rights or accrued benefits are outstanding as of such time, including but not limited to the Company's 401(k) Plan provided, however, that one share Common Stock of Stac Delaware shall be substituted for each share of Common Stock of Stac California (if any) thereunder. At the Effective Time, the Surviving Corporation shall adopt and continue in effect all such employee benefit plans upon the same terms and conditions as were in effect immediately prior to the Merger and shall reserve that number of shares of Stac Delaware Common Stock with respect to each such employee benefit plan as is equal to the number of shares of Stac California Common Stock (if any) so reserved at the Effective Time. 2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS 2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of Incorporation and Bylaws of Stac Delaware in effect at the Effective Time shall continue to be the Certificate of Incorporation and Bylaws of the Surviving Corporation. 2.2 DIRECTORS. The directors of Stac California immediately preceding the Effective Time shall become the directors of the Surviving Corporation at and after the Effective Time to serve until the expiration of their terms and until their successors are elected and qualified. 2.3 OFFICERS. The officers of Stac California immediately preceding the Effective Time shall become the officers of the Surviving Corporation at and after the Effective Time to serve at the pleasure of its Board of Directors. 3. MISCELLANEOUS 3.1 FURTHER ASSURANCES. From time to time, and when required by the Surviving Corporation or by its successors and assigns, there shall be executed and delivered on behalf of Stac California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest or perfect in or to conform of record or otherwise, in the Surviving Corporation the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Stac California and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of Stac California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 3.2 AMENDMENT. At any time before or after approval by the shareholders of Stac California, this Merger Agreement may be amended in any manner (except that, after the approval of the Merger Agreement by the shareholders of Stac California, the principal terms may not be amended without the further approval of the shareholders of Stac California) as may be determined in the judgment of the respective Board of Directors of Stac Delaware and Stac California to be necessary, desirable, or expedient in order to clarify the intention of the parties hereto or to effect or facilitate the purpose and intent of this Merger Agreement. 3. 4 3.3 CONDITIONS TO MERGER. The obligation of the Constituent Corporations to effect the transactions contemplated hereby is subject to satisfaction of the following conditions (any or all of which may be waived by either of the Constituent Corporations in its sole discretion to the extent permitted by law): (a) the Merger shall have been approved by the shareholders of Stac California in accordance with applicable provisions of the General Corporation Law of the State of California; and (b) Stac California, as sole stockholder of Stac Delaware, has approved the Merger in accordance with the General Corporation Law of the State of Delaware; and (c) any and all consents, permits, authorizations, approvals, and orders deemed in the sole discretion of Stac California to be material to consummation of the Merger shall have been obtained. 3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Time, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either Stac California or Stac Delaware or both, notwithstanding the approval of this Merger Agreement by the shareholders of Stac California or Stac Delaware or the prior filing of this Merger Agreement with the Secretary of State of the State of Delaware, or the consummation of the Merger may be deferred for a reasonable period of time if, in the opinion of the Boards of Directors of Stac California and Stac Delaware, such action would be in the best interest of such corporations. In the event of termination of this Merger Agreement, this Merger Agreement shall become void and of no effect and there shall be no liability on the part of either Constituent Corporation or its Board of Directors or shareholders with respect thereto, except that Stac California shall pay all expenses incurred in connection with the Merger or in respect of this Merger Agreement or relating thereto. 3.5 COUNTERPARTS. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. 4. 5 IN WITNESS WHEREOF, this Merger Agreement, having first been fully approved by the Board of Directors of Stac California and Stac Delaware, is hereby executed on behalf of each said corporation and attested by their respective officers thereunto duly authorized. STAC, INC., a California corporation By: /s/ GARY W. CLOW --------------------------------- Gary W. Clow, President and Chief Executive Officer ATTEST: John R. Witzel, Vice President of Finance, Chief Financial Officer and Secretary STAC, INC., a Delaware Corporation By: /S/ GARY W. CLOW --------------------------------- Gary W. Clow, President and Chief Executive Officer ATTEST: John R. Witzel, Vice President of Finance, Chief Financial Officer and Secretary EX-3.1 3 EXHIBIT 3.1 1 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF STAC, INC. The undersigned, a natural person (the "Sole Incorporator"), for the purpose of organizing a corporation to conduct the business and promote the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware hereby certifies that: I. The name of this corporation is Stac, Inc. II. The address of the registered office of the corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. A. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is one hundred ten million (110,000,000) shares. One hundred million (100,000,000) shares shall be Common Stock, each having a par value of one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($.001). B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a "Preferred Stock Designation") pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series 1. 2 or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. V. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. (1) The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. (2) Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (3) Subject to the rights of the holders of any series of Preferred Stock, the Board of Directors or any individual director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock") or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-outstanding shares of the Voting Stock. (4) Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall 2. 3 hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. (2) The directors of the corporation need not be elected by written ballot unless the Bylaws so provide. (3) No action shall be taken by the stockholders of the corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws and, following the effective date of the merger between the Corporation and Stac, Inc., a California corporation, no action shall be taken by the stockholders by written consent. (4) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of the shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. (5) Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation. VI. A. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by 3. 4 the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General corporation Law, as so amended. B. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. VII. A. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI and VII. VIII. The name and the mailing address of the Sole Incorporator is as follows: NAME MAILING ADDRESS David B. Berger Cooley Godward Castro Huddleson & Tatum 4365 Executive Drive, Suite 1200 San Diego, CA 92121-2128 IN WITNESS WHEREOF, this Certificate has been subscribed this 13th day of February 1996 by the undersigned who affirms that the statements made herein are true and correct. /S/ DAVID B. BERGER ---------------------------------- David B. Berger Sole Incorporator EX-3.2 4 EXHIBIT 3.2 1 EXHIBIT 3.2 BYLAWS OF STAC, INC. (A DELAWARE CORPORATION) 2 ARTICLE I Officers..................................................... 1 Section 1. Registered Office................................... 1 Section 2. Other Offices....................................... 1 ARTICLE II Corporate Seal............................................... 1 Section 3. Corporate Seal...................................... 1 ARTICLE III STOCKHOLDERS' MEETINGS...................................... 1 Section 4. Place of Meetings................................... 1 Section 5. Annual Meeting...................................... 2 Section 6. Special Meetings.................................... 4 Section 7. Notice of Meetings.................................. 4 Section 8. Quorum.............................................. 5 Section 9. Adjournment and Notice of Adjourned Meetings........ 5 Section 10. Voting Rights...................................... 5 Section 11. Joint Owners of Stock.............................. 6 Section 12. List of Stockholders............................... 6 Section 13. Action Without Meeting............................. 6 Section 14. Organization....................................... 7 ARTICLE IV DIRECTORS.................................................... 7 Section 15. Number and Term of Office.......................... 7 Section 16. Powers............................................. 8 Section 17. Election of Directors.............................. 8 Section 18. Vacancies.......................................... 8 Section 19. Resignation........................................ 8 Section 20. Removal............................................ 8 Section 21. Meetings........................................... 9 (a) Annual Meetings.................................... 9 (b) Regular Meetings................................... 9 (c) Special Meetings................................... 9 (d) Telephone Meetings................................. 9 (e) Notice of Meetings................................. 9 i 3 (f) Waiver of Notice................................... 9 Section 22. Quorum and Voting.................................. 10 Section 23. Action Without Meeting............................. 10 Section 24. Fees and Compensation.............................. 10 Section 25. Committees......................................... 10 (a) Executive Committee................................ 10 (b) Other Committees................................... 11 (c) Term............................................... 11 (d) Meetings........................................... 12 Section 26. Organization....................................... 12 ARTICLE V OFFICERS.................................................... 12 Section 27. Officers Designated................................ 12 Section 28. Tenure and Duties of Officers...................... 13 (a) General............................................ 13 (b) Duties of Chairman of the Board of Directors....... 13 (c) Duties of Chief Executive Officer.................. 13 (d) Duties of Vice Chairman of the Board of Directors.. 13 (e) Duties of President................................ 14 (f) Duties of Vice Presidents.......................... 14 (g) Duties of Secretary................................ 14 (h) Duties of Chief Financial Officer.................. 14 Section 29. Delegation of Authority............................ 15 Section 30. Resignations....................................... 15 Section 31. Removal............................................ 15 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION.................. 15 Section 32. Execution of Corporate Instruments................. 15 Section 33. Voting of Securities Owned by the Corporation...... 16 ARTICLE VII SHARES OF STOCK............................................ 16 Section 34. Form and Execution of Certificates................. 16 ii 4 Section 35. Lost Certificates.................................. 17 Section 36. Transfers.......................................... 17 Section 37. Fixing Record Dates................................ 17 Section 38. Registered Stockholders............................ 18 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................ 18 Section 39. Execution of Other Securities...................... 18 ARTICLE IX DIVIDENDS.................................................... 19 Section 40. Declaration of Dividends........................... 19 Section 41. Dividend Reserve................................... 19 ARTICLE X FISCAL YEAR 19 Section 42. Fiscal Year........................................ 19 ARTICLE XI INDEMNIFICATION.............................................. 20 Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents...................... 20 (a) Directors and Executive Officers................... 20 (b) Other Officers, Employees and Other Agents......... 20 (c) Expenses........................................... 20 (d) Enforcement........................................ 21 (e) Non Exclusivity of Rights.......................... 21 (f) Survival of Rights................................. 22 (g) Insurance.......................................... 22 (h) Amendments......................................... 22 (i) Saving Clause...................................... 22 (j) Certain Definitions................................ 22 ARTICLE XII NOTICES..................................................... 23 Section 44. Notices............................................ 23 (a) Notice to Stockholders............................. 23 (b) Notice to directors................................ 23 (c) Affidavit of Mailing............................... 24 (d) Time Notices Deemed Given.......................... 24 iii 5 (e) Methods of Notice.................................. 24 (f) Failure to Receive Notice.......................... 24 (g) Notice to Person with Whom Communication Is Unlawful......................................... 24 (h) Notice to Person with Undeliverable Address........ 24 ARTICLE XIII AMENDMENTS................................................. 25 Section 47. Amendments.......................................... 25 ARTICLE XIV LOANS TO OFFICERS........................................... 25 Section 48. Loans to Officers................................... 25 ARTICLE XV MISCELLANEOUS................................................ 26 Section 47. Annual Report....................................... 26 iv 6 BYLAWS OF STAC, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICERS SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. 1. 7 SECTION 5. ANNUAL MEETING. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the date of the corporation's proxy statement released to stockholders in connection with the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stock holder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the 2. 8 meeting that any such business not properly brought before the meeting shall not be transacted. (c) Only persons nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. 3. 9 SECTION 6. SPECIAL MEETINGS. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix. (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by tele graphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. 4. 10 SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with 5. 11 Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 13. ACTION WITHOUT MEETING. Effective upon the effective date of the merger between the corporation and Stac, Inc., a California corporation, no action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent. 6. 12 SECTION 14. ORGANIZATION. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Vice Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent and a Vice Chairman has not been appointed or is absent, the Chief Executive Officer, or, if a Chairman has not been appointed or is absent and a Vice Chairman has not been appointed or is absent and a Chief Executive Officer has not been appointed or is absent, the President, or, if all of such officers are absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall preside over the meeting. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the presiding officer, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. 7. 13 SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. SECTION 17. ELECTION OF DIRECTORS. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year and each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. SECTION 19. RESIGNATION. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. SECTION 20. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock, the Board of Directors or any individual director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock") or (ii) without cause by the 8. 14 affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the then-outstanding shares of the Voting Stock. SECTION 21. MEETINGS. (a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors. (c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors (d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (e) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (f) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not 9. 15 present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 22. QUORUM AND VOTING. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. SECTION 25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors 10. 16 shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. (b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint an audit committee, nominating committee and such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (c) TERM. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may 11. 17 unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Vice Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent and a Vice Chairman has not been appointed or is absent, the Chief Executive Officer, or, if a Chairman has not been appointed or is absent and a Vice Chairman has not been appointed or is absent and a Chief Executive Officer has not been appointed or is absent, the President, or, if all of such officers are absent, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the presiding officer, shall act as secretary of the meeting. ARTICLE V OFFICERS SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the Vice Chairman of the Board of Directors, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational 12. 18 meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. SECTION 28. TENURE AND DUTIES OF OFFICERS. (a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no Chief Executive Officer or President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present or, in the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors has been appointed and is present. The Chief Executive Officer shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The Chief Executive Officer shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) DUTIES OF VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice Chairman of the Board of Directors shall preside at all meetings of the stockholders and the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The Vice Chairman of the Board of Directors shall perform other duties 13. 19 commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (e) DUTIES OF PRESIDENT. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present or, in the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board has been appointed and is present or, in the absence of the Chairman and Vice Chairman of the Board of Directors, the Chief Executive Officer has been appointed and is present. If there is no Chief Executive Officer, then the President shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (f) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (g) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (h) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and 14. 20 have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer shall designate from time to time. SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. SECTION 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other 15. 21 evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. All checks and drafts drawn on banks or other depositories on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on 16. 22 the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 36. TRANSFERS. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. SECTION 37. FIXING RECORD DATES. (A) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the 17. 23 Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture 18. 24 pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. 19. 25 ARTICLE XI INDEMNIFICATION SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, "executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a 20. 26 determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation (d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action 21. 27 in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) INSURANCE. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. (j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had 22. 28 continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XII NOTICES Section 44. Notices. (a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such 23. 29 address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or 24. 30 Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENTS SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of these Bylaws, the Bylaws may be amended or repealed and new Bylaws adopted by (a) the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock or (b) the Board of Directors. ARTICLE XIV LOANS TO OFFICERS SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 25. 31 ARTICLE XV MISCELLANEOUS SECTION 47. ANNUAL REPORT. (a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 26. EX-10.14 5 EXHIBIT 10.14 1 EXHIBIT 10.14 OFFICE BUILDING LEASE TABLE OF CONTENTS SECTION Page 1. Basic Lease Terms ......................... 1 2. Premises and Common Areas Leased .......... 2 3. Term ...................................... 2 4. Possession ................................ 2 5. Rent ...................................... 3 6. Rental Adjustment ......................... 3 7. Security Deposit .......................... 4 8. Use ....................................... 4 9. Notices ................................... 5 10. Brokers ................................... 5 11. Holding Over .............................. 5 12. Taxes on Tenant's Property ................ 5 13. Condition of Premises ..................... 5 14. Alterations ............................... 5 15. Repairs ................................... 6 16. Liens ..................................... 6 17. Entry By Landlord ......................... 6 18. Utilities and Services .................... 6 19. Bankruptcy ................................ 7 20. Indemnification and Exculpation of Landlord 7 21. Damage to Tenant's Property ............... 7 22. Tenant's Insurance ........................ 7 23. Damage or Destruction ..................... 8 24. Eminent Domain ............................ 9 25. Defaults and Remedies ..................... 9 26. Assignment and Subletting ................. 10 27. Subordination ............................. 10 28. Estoppel Certificate ...................... 11 29. Building Planning ......................... 11 30. Rules and Regulations ..................... 11 31. Conflict of Laws .......................... 11 32. Successors and Assigns .................... 11 33. Surrender of Premises ..................... 11 34. Professional Fees ......................... 11 35. Performance by Tenant ..................... 11 36. Mortgagee Protection ...................... 12 37. Definition of Landlord .................... 12 38. Waiver .................................... 12 39. Identification of Tenant .................. 12 40. Parking ................................... 12 41. Force Majeure ............................. 12 42. Terms and Headings ........................ 12 43. Examination of Lease ...................... 12 44. Time ...................................... 12 45. Prior Agreement or Amendments ............. 13 46. Separability .............................. 13 47. Recording ................................. 13 48. Limitation on Liability ................... 13 49. Modification For Lender ................... 13 50. Financial Statements ...................... 13 51. Quiet Enjoyment ........................... 13 52. Tenant as Corporation ..................... 13 - ------------------------------------------------------------- EXHIBITS A Outline of Floor Plan or Premises B The Project C Notice of Lease Term Dates and Tenant's Percentage D Standards for Utilities and Services E Tenant Estoppel Certificate F Rules and Regulations G Parking Rules and Regulations H Hazardous Materials 2
OFFICE LEASE 1. BASIC LEASE TERMS. a. DATE OF LEASE EXECUTION: March 22, 1994 ------------------------------------------------------------------------------- b. TENANT: STAC Electronics, a California corporation ------------------------------------------------------------------------------------------------ Trade Name: ------------------------------------------------------------------------------------------- Address (leased Premises): 12636 High Bluff Drive --------------------------------------------------------------------------- San Diego, CA 92130 ------------------------------------------------------------------------------------------------------ Floor(s) upon which the Premises are located: Fourth (4th) Suite Number(s): 400 ------------------------------ --------- Address (For Notices): 12636 High Bluff Drive, Suite 400 --------------------------------------------------------------------------------- San Diego, CA 92130 ------------------------------------------------------------------------------------------------------ c. LANDLORD: Weyerhaeuser Mortgage Company, a California corporation and Fort Wayman, Inc. ----------------------------------------------------------------------------------------------- Address (For Notices): c/o Weyerhaeuser Mortgage Company, 6320 Canoga Avenue, Woodland Hills, CA 91367 --------------------------------------------------------------------------------- with a copy to Voit Management, 12626 High Bluff Drive, Suite 350, San Diego, CA 92130 or to such other place as Landlord may from time to time designate by notice to Tenant. d. PREMISES AREA: Approximately Fourteen Thousand Twenty-Four (14,024) Rentable Square Feet ----------------------------------------------------- e. PROJECT AREA: Fifty-Eight Thousand Ninety-Six (58,096) Rentable Square Feet -------------------------------------------------------------------- f. TENANT'S PERCENTAGE: 24.14% ------- g. TERM OF LEASE: The term of this Lease shall be for approximately thirty--eight (38) KB Months ------------------------------------------ commencing upon the earlier of: ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ (3) January 6, 1997, expiring on March 5, 2000 --------- -- Reference in this lease to a "Lease Year" shall mean each successive twelve month period commencing with the first day of the month in which the term of this Lease commences. h. BASE MONTHLY RENT: $Seventeen Thousand Five Hundred Thirty and No/100 Dollars ($17,530.00) ----------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- j. ANNUAL OPERATING EXPENSE ALLOWANCE: See Addendum "2." ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- k. PREPAID RENT: $ -0- --------------------- l. TOTAL SECURITY DEPOSIT: $17,530.00 payable on January 6, 1997. ------------------------------------------ ----------- m. TENANT IMPROVEMENT ALLOWANCE: $ -0- ------------------------------------------------------------------- ------ -----------------------------------------. The space shall be leased in "as is" condition. n. TENANT'S USE OF PREMISES: General office ------------------------------------------------------------------------------ o. PARKING: Fifty-eight (58) spaces, including six (6) covered and reserved, free of charge. ---------------- p. BROKER(S): CB Commercial Real Estate Group, Inc. and Business Real Estate Brokerage Company, Inc. -------------------------------------------------------------------------------------------- q. BROKERAGE COMMISSION PAYABLE BY: Landlord --------------------------------------------------------------------- r. GUARANTOR(S) None ------------------------------------------------------------------------------------------ s. ADDITIONAL SECTIONS Additional Sections of this lease numbered Addenda "1" through "4" --- are attached hereto and made a part hereof. --- t. ADDITIONAL EXHIBITS Additional exhibits letters H --- are attached hereto and made a part hereof. ---
* a Michigan corporation, tenants in common 1 3 Section 1 represents a summary of the basic terms of this Lease. In the event of any inconsistency between the terms contained in Section 1 and any specific clause of this Lease, the terms of the more specific clause shall prevail. The parties hereto agree that said letting and hiring is upon and subject to the terms, convenants and conditions herein set forth. Tenant covenants, as a material part of the consideration for this Lease to keep and perform each and all of said terms, convenants and conditions for which tenant is liable and that this Lease is made upon the condition of such performance. 2. PREMISES AND COMMON AREAS LEASED. a. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises described in Section 1 and in Exhibit A attached hereto (the "Premises"), * ---------------------------------------------------------- Landlord and Tenant stipulate that for purposes of this Lease the Premises contain 14,024 rentable square feet and the Project contains 58,096 rentable square feet. b. The Premises are contained within the building at the address designated in Section 1 located in the Project described on Exhibit B attached hereto (the "Project"). c. Tenant's Percentage of the Project ** --------------------------------------. d. Tenant shall have the nonexlusive right to use in common with other tenants in the Building and the Project and subject to the Rules and Regulations referred to in Paragraph 30 below the following areas ("Common Areas") appurtenant to the Premises: (1) The Building's common entrances, lobbies, restrooms, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises; (2) Loading and unloading areas, trash areas, parking areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities appurtenant to the Building. e. Landlord reserves the right from time to time without unreasonable interference with Tenant's use: (1) To install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building or Project; (2) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (3) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available: (4) To designate other land outside the boundaries of the Building or Project to be a part of the Common Areas; (5) To add additional buildings and improvements to the Common Areas; (6) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or the Project, or any portion thereof, (7) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas, the Building or the Project as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 3. TERM. The term of this Lease shall be for the period designated in Section 1, commencing on the Commencement Date, and ending on the expiration of such period, unless the term hereby demised shall be sooner terminated as hereinafter provided. If not specifically designated in Section 1, the Commencement Date, the date upon which the term of this Lease shall end, the rentable square feet within the Premises and Tenant's Percentage shall be determined in accordance with the provisions of Paragraph 2 and will be specified in Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "C" which is attached hereto and is incorporated herein by this reference, and shall be served upon Tenant as provided in Paragraph 9. The Notice shall be binding upon Tenant unless Tenant objects to the Notice in writing, served upon Landlord as provided for in Paragraph 9 hereof, within five (5) days of Tenant's receipt of the Notice. 4. POSSESSION. Tenant agrees that, if Landlord is unable to deliver possession of the Premises to Tenant on the scheduled commencement of the term of this Lease, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, nor shall the expiration date of the above term be in any way extended, but in such event Tenant shall not be liable for any rent until Landlord tenders possession of the Premises to Tenant.------ - ------------------------------------------------------------------------------. * "as is" and in the condition that will exist on the Commencement Date. ** is stipulated to be 24.14%. 2 4 5. RENT. a. Tenant shall pay Landlord monthly base rent in the initial amount set forth in Section 1 which shall be payable monthly in advance on the first day of each and every calendar month ("Base Monthly Rent") provided, however, the first month's rent shall be due and payable upon execution of this lease. - -------------------------------------------------------------------------------- d. All rent shall be paid by Tenant to Landlord monthly in advance on the first day of every calendar month, at the address shown in Section 1, or such other place as Landlord may designate in writing from time to time. All rent shall be paid without prior demand or notice and without any deduction or offset whatsoever. All rent shall be paid in lawful currency of the United States of America. All rent due for any partial month shall be prorated at the rate of 1/30th of the total monthly rent per day. Tenant acknowledges that late payment by Tenant to Landlord of any rent or other sums due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to ascertain. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by the Premises. Therefore, if any rent or other sum due from Tenant is not received when due, Tenant shall pay to landlord an additional sum equal to 10% of such overdue payment. Landlord and Tenant hereby agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment. Additionally, all such delinquent rent or other sums, plus this late charge, shall bear interest at the then maximum lawful rate permitted to be charged by Landlord. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $25.00, and thereafter, Landlord may require Tenant to pay all future payments of rent or other sums due by money order or cashiers check. e. Upon the execution of the Lease, Tenant shall pay to Landlord the prepaid rent set forth in Section 1 and if Tenant is not in default of any provisions of the Lease, such prepaid rent shall be applied toward the rent due for the first month of the term. Landlord's obligations with respect to the prepaid rent are those of a debtor and not of a trustee, and Landlord can commingle the prepaid rent with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the prepaid rent. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid rent; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid rent. - -------------------------------------------------------------------------------- g. "For purposes of Section 467 of the Internal Revenue Code, the parties to this lease agreement hereby agree to allocate the stated rents, provided herein, to the periods which correspond to the actual rent payments as provided under the terms and conditions of this agreement." 6. RENTAL ADJUSTMENT. a. For the purposes of this Paragraph 6, the following terms are defined as follows: (1) Tenant's Percentage shall mean that portion of the total rentable area of the Project occupied by Tenant as set forth as a percentage in Section 1. - -------------------------------------------------------------------------------- (3) Operating Expenses shall consist of all direct costs of operation and maintenance of the Project and the Common Areas, including any expansions to the Common Areas by Landlord ("Operating Expenses"), as determined by standard accounting practices, calculated assuming the Project is fully occupied, including the following costs by way of illustration, but not limitation: any and all assessments Landlord must pay for the Project pursuant to any covenants, conditions or restrictions, reciprocal easement agreements, tenancy-in-common agreements or similar restrictions and agreements affecting the Building or the Project; real property taxes and assessments and any taxes or assessments hereafter imposed in lieu thereof; rent taxes, gross receipt taxes (whether assessed against Landlord or assessed against Tenant and paid by Landlord, or both); water and sewer charges; accounting; legal and other consulting fees; the net cost and expense of insurance for which Landlord is responsible hereunder or which Landlord or any first mortgagee with a lien affecting the Premises reasonably deems necessary in connection with the operation of the Project; utilities; janitorial services; security; labor; parking charges, utilities surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations or interpretations thereof, promulgated by any federal, state, regional, municipal or local government authority in connection with the use or occupancy of the Project or the Premises or the parking facilities serving the Project or the Premises; the cost (amortized over such reasonable period as Landlord shall determine together with Interest at the maximum rate allowed by law on the unamortized balance) of any capital improvements made to the Project or the Common Areas by the Landlord in order to comply with any governmental requirements not in existence as of the date of this Lease or designed to reduce Operating Expenses or replacement of any building equipment needed to operate the Building or the Common Areas at the same quality levels as prior to the replacement; costs incurred in the management of the Project, if any (including supplies, wages and salaries of employees used in the management, operation and maintenance of the Project, and payroll taxes and similar governmental charges with respect thereto, Project management office rental, a management fee and, in the event Landlord is directly participating in the administration of the Project, an administrative fee in the amount of Landlord's actual expenses, such administrative fee not to exceed fifteen percent (15%) of the annual Operating Expenses excluding therefrom such fee); air conditioning; waste disposal; heating; ventilating; elevator maintenance; supplies; materials; equipment; tools; repair and maintenance of the structural portions of the Project, including the plumbing, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord; maintenance costs, including utilities and payroll expenses, rental of personal property used in maintenance, and all other upkeep of all parking and Common Areas; costs and expenses of 3 5 gardening and landscaping; maintenance of signs (other than Tenant's signs); personal property taxes levied on or attributable to personal property used in connection with the entire Project, including the Common Areas; reasonable audit or verification fees; and costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal, security and similar items, including appropriate reserves. Operating Expenses shall not include depreciation on buildings or equipment therein, Landlord's executive salaries or real estate brokers' commissions. (4) As used herein, the term "real property taxes" shall include any form of assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, penalty, tax or similar imposition, imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, including, but not limited to, the following: (a) any tax on Landlord's "right" to other income from the Premises or as against Landlord's business of leasing the Premises; (b) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real estate tax, including but not limited to, any assessments, taxes, fees, levies and charges that may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of "real property taxes" for the purposes of this Lease; (c) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax or excise tax levied by the State, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (d) any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. Notwithstanding any provision of this paragraph 6 expressed or implied to the contrary, "real property taxes" shall not include Landlord's federal or state income, franchise, inheritance or estate taxes. - ------------------------------------------------------------------------------ c. Even though the term has expired and Tenant has vacated the Premises, when final determination is made of Tenant's Percentage of Operating Expenses for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease Shall be rebated by Landlord to Tenant. 7. SECURITY DEPOSIT. Tenant shall deposit with Landlord the amount of the security deposit set forth in Section 1 in part as security for the performance by Tenant of the provisions of this Lease------------------. If Tenant is in default, Landlord can use the security deposit or any portion of it to cure the default or to compensate Landlord for all damage sustained by landlord resulting from Tenant's default. Upon demand, Tenant shall immediately pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord to maintain the security deposit in the amount initially deposited with Landlord. In no event will Tenant have the right to apply any part of the security deposit to any rent or other sums due under this Lease. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the entire security deposit to Tenant. ----------------- Landlord's obligations with respect to the deposit are those of a debtor and not of a trustee, and Landlord can commingle the security deposit with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the deposit. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid deposit; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid deposit. Should Landlord sell its interest in the Premises during the term hereof and if Landlord deposits with the purchaser thereof the then unappropriated funds deposited by Tenant as aforesaid, thereupon Landlord shall be discharged from any further liability with respect to the Security Deposit. 8. USE. Tenant shall use the Premises for the uses set forth in Section 1 above, and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building. Tenant shall not use or occupy the Premises in violation of law or of the Certificate of Occupancy issued for the Building, and shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of said Certificate of Occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant shall comply with all rules, orders, regulations and requirements of the Insurance Service Office or any other organization performing a similar function. Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Paragraph. Tenant shall not do or permit anything to be done in or about the Premises 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 improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about 4 6 the Premises. Tenant shall comply with all restrictive covenants and obligations (created by private contracts which affect the use and operation of the Premises, the Building, the Common Area or the Project. Subject to Paragraph 23 hereof, Tenant shall not commit or suffer to be committed any waste in or upon the Premises and shall keep the Premises in first class repair and appearance, normal wear and tear excepted. Landlord reserves the right to prescribe the weight and position of all files, safes and heavy equipment which Tenant desires to place in the Premises so as to properly distribute the weight thereof. Further, Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the building structure or to any other space in the building shall be so installed, maintained and used by Tenant as to eliminate such Vibration or noise. Tenant shall be responsible all structural engineering required to determine structural load. 9. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery or by mail, and if given by mail shall be deemed sufficiently given if sent by registered or certified mail addressed to Tenant at the address(es) designated in Section 1 or to Landlord at both of the addresses designated in Section 1. Either party may specify a different address for notice purposes by written notice to the other. 10. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for those certain brokers whose names are set forth in Section 1 and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. If Tenant has dealt with any other person or real estate broker with respect to leasing or renting space in the Project, Tenant shall be solely responsible for the payment of any fee due said person or firm and Tenant shall hold Landlord free and harmless against any liability in respect thereto, including attorneys' fees and costs. 11. HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant shall become a Tenant at sufferance only, at a rental rate equal to the greater of Landlord's scheduled rent for the space or one hundred twenty-five percent (125%) of the rent in effect upon the date of such expiration (subject to adjustment as provided in Paragraph 6 hereof and prorated on a daily basis), and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result In a renewal of this Lease. The foregoing provisions of this Paragraph 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender and any attorneys fees and costs. 12. TAXES ON TENANT'S PROPERTY. a. Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment. - ------------------------------------------------------------------------------- 13. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the building or the Project or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the building were in satisfactory condition at such time. Without limiting the foregoing, Tenant's execution of the Notice attached hereto as EXHIBIT "C" shall constitute a specific acknowledgement and acceptance of the various start-up inconveniences that may be associated with the use of the Common Areas such as certain construction obstacles including scaffolding, delays in use of freight elevator service, certain elevators not being available to Tenant, the passage of work crews using elevators, uneven air conditioning services and other typical conditions incident to recently constructed office buildings. 14. ALTERATIONS a. Tenant shall make no alterations, additions or improvements in or to the Premises without Landlord's prior written consent *, and then only by contractors or mechanics approved by Landlord; such consents and approvals by Landlord shall not be unreasonably withheld or delayed. Tenant shall submit to Landlord plans and specifications for any proposed alterations, additions or improvements to the Premises, and may not make such alterations, additions or improvements until Landlord has approved of such plans and specifications. Tenant shall construct such alterations, additions or improvements in accordance with the plans and specifications approved by Landlord, and shall not amend or modify such plans and specifications without Landlord's prior written consent. If the proposed change requires the consent or approval of any lessor of a superior lease, or the holder of a mortgage encumbering the Premises, such consent or approval must be secured prior to the construction of such alteration, addition or improvement and Landlord agrees to cooperate in obtaining any such consent or approval. Tenant agrees that there shall be no construction of partitions or other obstructions which might interfere with Landlord's free access to mechanical installations or service facilities of the building or interfere with the moving of Landlord's equipment to or from the enclosures containing said installations or facilities. All such work shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all laws, rules, orders, ordinances, regulations and requirements of all governmental agencies, offices and boards having jurisdiction, and in full compliance with the rules, regulations and requirements of the Insurance Service Office, and of any similar body. Before commencing any work, Tenant shall give Landlord at least ten (10) days written notice of the proposed commencement of such work and shall, if required by Landlord - secure at Tenant's own *unless such alterations, additions, or improvements are less than a cost of Five Thousand and No/100 Dollars 5 7 cost and expense, a completion and lien indemnity bond satisfactory to Landlord for said work if said work costs more than $100,000. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within (10) ten days after the filing thereof, at the cost and expense of Tenant. All alterations, additions or improvements upon the Premises made by either party, including (without limiting the generality of the foregoing) all wallcovering, built-in cabinet work, paneling and the like, shall, - ---------------------- become the property of Landlord, and shall remain upon, and be surrendered with the Premises,as a part thereof, at the end of the term hereof.---------------------------------------------------. b. All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the lease term ---------------------. If Tenant shall fail to remove all of its effects from the Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof. In such event, Tenant agrees to pay Landlord upon demand any and all expenses incurred in such removal, including court costs and attorneys' fees and storage charges on such effects, for any length of time that the same shall be in Landlord's possession. Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale upon any amounts due under this Lease from Tenant to Landlord and upon the expense incident to the removal and sale of said effects. 15. REPAIRS. a. By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair. Subject to Paragraph 23 hereof, Tenant shall keep, maintain and preserve the Premises in first class condition and repair normal wear and tear excepted and shall, when and if needed, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof. Tenant shall, upon the expiration or sooner termination of the term hereof, surrender the Premises to Landlord in the same condition as when received, usual and ordinary wear and tear excepted. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. The parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises, the building, the Project or the Common Area except as specifically herein set forth. b. Anything contained in Paragraph 15a above to the contrary notwithstanding, Landlord shall repair and maintain the structural portions of the building and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 23 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 16. LIENS. Tenant shall not permit any mechanics', materialmens' or other liens to be filed against the building or the Project nor against Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payments in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest at the maximum rate per annum permitted by law from the date of such payment by Landlord. 17. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times (except as provided below) have the right to enter the Premises to inspect the same upon reasonable prior notice to Tenant to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants upon reasonable prior notice to Tenant, to post notice of nonresponsibility, to alter, improve or repair the Premises or any other portion of the Building * , all without being deemed guilty of any eviction of Tenant and without abatement of rent. Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, provided that the business of Tenant shall be interfered with as little as reasonably practicable. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. 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 to the Premises obtained by Landlord by any of said means, or otherwise, shall not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant. It is understood and agreed that no provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein by Landlord. 18. UTILITIES AND SERVICES. Provided that Tenant is not in default under this Lease, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services, attached hereto as EXHIBIT "D", subject to the conditions and in accordance with the standards set forth therein. Landlord's failure to furnish any of the foregoing items when such failure is caused by (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or by (v) any other cause beyond Landlord's reasonable control, shall not result in any liability to Landlord. In addition, Tenant shall not be entitled to any abatement or reduction of rent by reason of such failure, no eviction of Tenant shall result from such failure and Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord shall diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, Landlord may at its option require Tenant to pay, as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage. In addition, Landlord may install separate meter(s) for the Premises at Landlord's sole expense, and Tenant thereafter shall pay all charges of the utility providing service and Landlord shall make an appropriate adjustment to account for the fact Tenant is directly paying such metered charges. * (with reasonable prior notice to Tenant for non-routine repairs and maintenance) 6 8 19. BANKRUPTCY. If Tenant shall file a petition in bankruptcy under any provision of the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within thirty (30) days from the date thereof, or if a receiver or trustee shall be appointed of Tenant's property and the order appointing such receiver of trustee shall not be set aside or vacated within thirty (30) days after the entry thereof, or if Tenant shall assign Tenant's estate or effects for the benefit of creditors, ------------------------------- then in any such event Landlord may terminate this Lease, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord. In such case, notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall, upon such termination, be entitled to recover damages in the amount provided in Paragraph 25b hereof. Neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or order of any court shall be entitled to possession of the Premises but shall surrender the Premises to Landlord. Nothing contained herein shall limit or prejudice the right of Landlord to recover damages by reason of any such termination equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved; whether or not such amount is greater, equal to or less than the amount of damages recoverable under the provisions of this Paragraph 19. 20. INDEMNIFICATION AND EXCULPATION OF LANDLORD. a. Tenant shall indemnity, defend and hold Landlord harmless from 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, the Building, the Project or the Common Area **. Tenant shall further indemnify, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the terms of this Lease, or arising from any act, neglect, fault or omission of Tenant or of its agents or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to person in, upon or about the Premises from any cause whatsoever except that which is caused by the failure of Landlord to observe any of the terms and conditions of this Lease where such failure has persisted for an unreasonable period of time after written notice of such failures. Tenant hereby waives all its claims in respect thereof against Landlord. b. Neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable to Tenant or its partners, directors, officers, contractors, agents, employees, invitees, sublessees or licensees, for any loss, injury or damage to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss, unless solely caused by or solely resulting from the gross negligence or willful misconduct of Landlord or its employees or agents in the operation or maintenance of the Premises, the building, or the Project without contributory negligence on the part of Tenant or any of its sublessees or licensees or its or their employees, agents or contractors, or any other lessees or occupants of the building or Project. Further, neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable (i) for any such damage caused by other lessees or persons in or about the building or Project, or caused by quasi-public work; or (ii) for consequential damages arising out of any loss of the use of the Premises of any equipment or facilities therein by Tenant or any person claiming through or under Tenant. 21. DAMAGE TO TENANT'S PROPERTY. * Notwithstanding the provisions of Paragraph 20 to the contrary, Landlord or its agents shall not be liable for (i) any damage to any property entrusted to employees of the building or Project, (ii) loss or damage to any property by theft or otherwise, (iii) 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 the building or from the pipes, appliances or plumbing work therein or from the roof, street or sub-surface or from any other place or resulting from dampness or any other cause whatsoever. Landlord or its agents shall not be liable for interference with light or other incorporeal hereditaments, nor shall Landlord be liable for any latent defect in the Premises or in the building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the building or of defects therein or in the fixtures or equipment. 22. TENANT'S INSURANCE. a. Tenant shall, during the term hereof and any other period of occupancy, at its sole cost and expense, keep in full force and effect the following insurance: (1) Standard from property insurance insuring against the perils of fire, extended coverage, vandalism, malicious mischief, special extended coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon all property owned by Tenant, for which Tenant is legally liable or that was installed at Tenant's expense, and which is located in the Project including, without limitation, furniture, fittings, installations, fixtures (other than Tenant improvements installed by Landlord), and any other personal property, in an amount not less than ninety percent (90%) of the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord or any mortgagees of Landlord shall be conclusive. This insurance policy shall also be upon direct or indirect loss of Tenant's earnings attributable to Tenant's inability to use fully or obtain access to the Premises, Building or Project in any amount as will properly reimburse Tenant. Such policy shall name Landlord and any mortgages of Landlord as insured parties, as their respective interests may appear. (2) Comprehensive General Liability Insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $1,000,000 Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with such liability amount to be adjusted from year to year to reflect increases in the Consumer Price Index. The policy shall insure the hazards of the Premises and Tenant's Operations thereon, independent contractors, contractual liability (covering the indemnity contained in Paragraph 20 hereof) and shall (a) name Landlord as an additional insured, (b) contain a cross liability provision and (c) contain a provision that the insurance provided the Landlord hereunder shall be primary and non-contributing with any other insurance available to the Landlord. (3) Workers' Compensation and Employer's Liability insurance (as required by state law). (4) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would protect itself. b. All policies shall be written in a form satisfactory to Landlord and shall be taken out with insurance companies holding a General Policyholders Rating of "A" and a Financial Rating of "X" or better, as set forth in the most current issue of Best's Insurance Reports. Within ten (10) days after the execution of this Lease, Tenant shall deliver to Landlord copies of policies or certificates evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancellable or reducible in coverage except after thirty (30) days prior written notice to Landlord. Tenant shall, within ten (10) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as additional rent. If Landlord obtains any insurance that is the responsibility of Tenant under this Paragraph, Landlord shall deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed. * Except to the extent of Landlord's or its employees' or agents' gross negligence or willful misconduct, ** Except to the extent or Landlord's or its employees' or agents' negligence or willful misconduct, 7 9 c. During the term of this Lease, Landlord shall insure the Building (excluding any property which Tenant is obligated to insure under Subparagraphs 22a and b hereof) against damage with All-Risk insurance and public liability insurance, all in such amounts and with such deductions as Landlord considers appropriate. Upon written request of Tenant with reference to this Subparagraph 22c, Landlord shall provide Tenant with a copy of a certificate of Landlord's insurance. Landlord may, but shall not be obligated to, obtain and carry any other form or forms of insurance as it or Landlord's mortgagees may determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums, as provided herein, Tenant acknowledges that it has no right to receive any proceeds from any insurance policies carried by Landlord. d. Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as additional rent within ten (10) days after being billed therefore by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Tenant Improvements showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. e. If any of Landlord's insurance policies shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage, threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within forty-eight (48) hours after notice thereof, Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry. If Landlord is unable, or elects not to remedy such condition, then Landlord shall have all of the remedies provided for in this Lease in the event of a default by Tenant. Notwithstanding the foregoing provisions of this Subparagraph 22e, if Tenant fails to remedy as aforesaid, Tenant shall be in default of its obligation hereunder and Landlord shall have no obligation to remedy such default. f. All policies of insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by policies of insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby. See Addendum "1" Item 8. - -------------------------------------------------------------------------------- 8 10 24. EMINENT DOMAIN. a. In case all of the premises, or such part thereof as shall substantially interfere with Tenant's use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking, and Landlord shall be entitled to receive the entire amount of any award without deduction for any estate or interest of Tenant. In the event the amount of property or the type of estate taken shall not substantially interfere with the conduct of Tenant's business, Landlord shall be entitled to the entire amount of the award without deduction of any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition prior to such partial taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant or for moving expenses or for the unamortized portion of tenant improvements paid for by Tenant. b. In the event of taking of the Premises or any part thereof for temporary use, (1) this Lease shall be and remain unaffected thereby and rent shall not abate, and (2) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under Paragraph 15 with respect to surrender of the Premises and upon such payment shall be excused from such obligations. For purpose of this Subparagraph 24b, a temporary taking shall be defined as a taking for a period of 270 days or less. 25. DEFAULTS AND REMEDIES. a. The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (1) The ------------------- abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for ten (10) business days or longer while in default of any provision of this Lease. (2) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, ------------ within five days after notice to Tenant that such payment is due. (3) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraph 25a.(1) or (2) above, where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant. If the nature of Tenant's default is such that more than ten (10) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within said ten (10) day period and thereafter diligently prosecute such cure to completion. ------------------------------------------------------------------- (4) The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in the Lease where such seizure is not discharged within thirty (30) days. * b. In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (1) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (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 Tenant proves could have been reasonable avoided; plus (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 that Tenant proves could be reasonably avoided; plus (4) any other amount necessary to compensate Landlord for all the 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. As used in Subparagraphs 25b (1) and (2) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law. As used in Subparagraph 25b (3) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). c. In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this paragraph 25c shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. d. In the event of the ---------------- abandonment of the Premises by Tenant or in the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided above, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due and relet the Premises or any part thereof for the term for this Lease on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises, fourth, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant * (5) A default by Tenant under the lease of even date herewith with Landlord for Suite 200. 9 11 shall pay such deficiency to Landlord immediately upon demand therefore by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred, including but not limited to brokers' commissions, by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. e. All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver. The consent or approval of Landlord to or 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 similar acts by Tenant. 26. ASSIGNMENT AND SUBLETTING. a. Tenant shall not voluntarily assign or encumber 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 prior written consent which shall not be unreasonably withheld or delayed. Any assignment, encumbrance or sublease without Landlord's prior written consent shall be voidable at Landlord's election and shall constitute a default. ------------------------------------------------------- No consent to an assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this Paragraph. Tenant shall notify Landlord in writing of Tenant's intent to assign, encumber or sublease this Lease, the name of the proposed assignee or sublessee, information concerning the financial responsibility of the proposed assignee or sublessee and the terms of the proposed assignment or subletting, and Landlord shall, within thirty (30) days of receipt of such written notice, and additional information requested by Landlord concerning the proposed assignee's or sublessee's financial responsibility, elect one of the following: (1) consent to such proposed assignment, encumbrance or sublease; or (2) refuse such consent, which refusal shall be on reasonable grounds.-------------------------------- In addition, a condition to Landlord's consent to any assignment, transfer or hypothecation of this Lease shall be the delivery to Landlord of a true copy of the fully executed instrument of assignment, transfer or hypothecation, and the delivery to Landlord of an agreement executed by the assignee in form and substance satisfactory to Landlord and expressly enforceable by Landlord, whereby the assignee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. b. As a condition to Landlord's consent to any sublease, such sublease shall provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (1) terminate the sublease or (2) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee shall attorn to Landlord, but that nevertheless Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. c. In the event that Landlord shall consent to an assignment or sublease under the provisions of this Paragraph 26, Tenant shall pay Landlord's processing costs and attorneys' fees incurred in giving such consent. If Landlord shall consent to any assignment of this Lease, Tenant shall pay to Landlord, as additional rent, * ----------- of all sums and other considerations payable to and for the benefit of Tenant by the assignee on account of the assignment, as and when such sums and other consideration** are due and payable by the assignee to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant's liability for the same, Tenant shall instruct the assignee to pay such sums and other consideration directly to Landlord). If for any proposed sublease Tenant receives rent or other consideration, either initially or over the term of the sublease, in excess of the rent called for hereunder or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account. Tenant shall pay to Landlord as additional rent hereunder,*------------ of the excess of each such payment of rent or other consideration received by Tenant** promptly after its receipt. Landlord's waiver or consent to any assignment or subletting shall not relieve Tenant or any assignee or sublessee from any obligation under this Lease whether or not accrued. Occupancy of all or part of the Premises by parent or subsidiary companies of Tenant shall not be deemed an assignment or subletting.-------------------------------------------------------------------- * one-half (1/2) 27. SUBORDINATION. *** a. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the building or any ground lessor with respect to the building, this Lease shall be subject and subordinate at all times to: (1) all ground leases or underlying leases which may now exist or hereafter be executed affecting the building or the land upon which the building is situated or both; and (2) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. *** b. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates ** after Tenant's recovery of reasonable, actual, out-of-pocket expenses in connection with such assignment or sublease (including, without limitation, a subtenant improvement allowance) and other monetary concessions *** Subject to Addendum 1, Item 2, 10 12 for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority of subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Should Tenant fail to sign and return any such documents within ten (10) business days of request Tenant shall be in default, and Landlord may, at Landlord's option, terminate the Lease provided written notice of such termination is received by Tenant prior to Landlord's receipt of such documents. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant. 28. ESTOPPEL CERTIFICATE. a. Within ten (10) days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a statement, in a form substantially similar to the form of Exhibit "E", certifying: (1) the date of commencement of this Lease; (2) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, and stating the date and nature of such modifications); (3) the date to which the rental and other sums payable under this Lease have been paid; (4) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (5) such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. b. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (1) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (2) that there are no uncured defaults in Landlord's performance, and (3) that not more than one (1) month's rental has been paid in advance. Tenant's failure to deliver said statement to Landlord within ten (10) working days of receipt shall constitute a default under this Lease and Landlord may, at Landlord's option, terminate the Lease, provided written notice of such termination is received by Tenant prior to Landlord's receipt of said statement. [------------------------------------------------------------------------------] 30. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the "Rules and Regulations", a copy of which is attached hereto and marked Exhibit "F", and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the building or Project of any of said Rules and Regulations. 31. CONFLICT OF LAWS. This Lease shall be governed by and construed pursuant to the laws of the state in which the premises are located. 32. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 33. SURRENDER OF PREMISES. 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, operate as an assignment to it of any or all subleases or subtenancies Upon the expiration or termination of this Lease, Tenant shall peaceably surrender the Premises and all alterations and additions thereto, broom clean the Premises, leave the Premises in good order, repair and condition, reasonable wear and tear excepted, and comply with the provisions of Paragraph 15. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not be sufficient to constitute a termination of this Lease or a surrender of the Premises. 34. PROFESSIONAL FEES a. If Landlord should bring suit for possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease, or for any other relief against Tenant hereunder, or in the event of any other litigation or appeal between the parties with respect to this lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees, incurred by the prevailing, party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. If Landlord employs a collection agency to recover delinquent charges, Tenant agrees to pay all collection agency fees charged to Landlord in addition to rent, late charges, interest and other sums payable under this Lease. Tenant shall pay a charge of $75 to Landlord for preparation of a demand for delinquent rent b. If Landlord is named as a defendant in any suit or appeal brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees. 35. PERFORMANCE BY TENANT. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, for which it is liable hereunder, or if Tenant shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, making any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permissible by law, from the date of such payment by Landlord, shall be payable to Landlord on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the non-payment thereof by Tenant as are set forth in Paragraph 25. 11 13 36. 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 mortgage covering 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 a judicial foreclosure, if such should prove necessary to effect a cure. 37. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. Without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. 38. WAIVER. The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of Landlord to insist upon the performance by Tenant in strict accordance with said terms. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rental and additional rent or other sum then due shall be deemed to be other than on account of the earliest installment of such rent or other amount due, nor shall any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy in this Lease provided. 39. IDENTIFICATION OF TENANT. If more than one person executes this lease as Tenant, (1) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (2) the term "Tenant" as used in this Lease shall mean and include each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. 40. PARKING. a. Tenant shall have the right to use the type and number of spaces indicated in Section 1. [-------] All such spaces shall be provided to Tenant at no cost. b. The use by Tenant, its employees and invitees, of the parking facilities of the Project shall be on the terms and conditions set forth in Exhibit G attached hereto and by this reference incorporated herein, and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in Exhibit G, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. 41. FORCE MAJEURE. Except as applied to Paragraph 23, Landlord shall have no liability whatsoever to Tenant on account of (1) the inability of Landlord to fulfill, or delay in fulfilling, any of Landlord's obligations under this Lease by reason of strike, other labor trouble, governmental preemption of priorities or other controls in connection with a national or other public emergency, or shortages of fuel, supplies or labor resulting therefrom or any other cause, whether similar or dissimilar to the above, beyond Landlord's responsible control; or (2) any failure or defect in the supply, quantity or character of electricity or water furnished to the Premises, by reason of any requirement, act or omission of the public utility or others furnishing the Project with electricity or water, or for any other reason, whether similar or dissimilar to the above, beyond Landlord's reasonable control. If this Lease specifies a time period for performance of an obligation of Landlord, that time period shall be extended by the period of any delay in Landlord's performance caused by any of the events of force majeure described above. 42. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 43. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. 44. TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. 12 14 45. PRIOR AGREEMENT OR AMENDMENTS. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in the Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors-in-interest. 46. SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. 47. RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the consent of the other. 48. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (1) The sole and exclusive remedy shall be against the Landlord's interest in the Project; (2) No partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (3) No service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (4) No partner of Landlord shall be required to answer or otherwise plead to any service of process; (5) No judgment will be taken against any partner of Landlord; (6) Any judgment taken against any partner of Landlord may be vacated and set aside at any time nunc pro tunc; (7) No writ of execution will ever be levied against the assets of any partner of Landlord; (8) The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; (9) These covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. 49. MODIFICATION FOR LENDER. If, in connection with obtaining construction, interim or permanent financing for the Project the lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 50. FINANCIAL STATEMENTS. At any time during the term of this Lease, Tenant shall upon ten (10) days prior written notice from Landlord, provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 51. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying the rent required under this lease and paying all other charges and performing all of the covenants and provisions aforesaid on tenant's part to be observed and performed under this Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 52. TENANT AS CORPORATION. Covenant executes this Lease as a corporation, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf in accordance with a duly adopted resolution of the board of directors of Tenant. a copy of which is to be delivered to landlord on execution hereof, and in accordance with the bylaws of Tenant and that this Lease is binding upon Tenant in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: WEYERHAEUSER MORTGAGE COMPANY, a California corporation and FORT WYMAN, INC., a Michigan corporation, tenants in common ADDRESS: Weyerhaeuser Mortgage Company 6320 Canoga Avenue Woodland Hills, CA 91367 By: WEYERHAEUSER MORTGAGE COMPANY, managing tenant in common ADDRESS: 12636 High Bluff Drive, Suite 400 San Diego, CA 92130 By: /s/ Dorothy Forbes -------------------------------- Dorothy Forbes, Vice President TENANT: STAC ELECTRONICS, a CALIFORNIA corporation By: /s/ JOHN R. WITZEL --------------------------------- John R. Witzel 15 ADDENDUM "1" 1. NON-DISTURBANCE - Montgomery Watson/Stac Sublease. Concurrently with the parties' execution of this Lease, Tenant is entering into a sublease with the existing tenant in Suite 400, Montgomery Watson (the "Montgomery Watson/Stac Sublease"). Landlord agrees that, in the event of any termination of Landlord's master lease with Montgomery Watson for Suite 400 prior to the Commencement Date of this Lease, so long as Tenant attorns to Landlord, Tenant's quiet possession of Suite 400 under the Montgomery Watson/Stac Sublease will not be disturbed and its rights and obligations under the Montgomery Watson/Stac Sublease will not be altered. 2. Non-Disturbance - Section 27. Notwithstanding the provisions of Section 27, in the event of a foreclosure of any mortgage or deed of trust or termination of any ground lease, so long as Tenant attorns to the successor fee owner or ground tenant, Tenant's quiet possession of the Premises will not be disturbed and its rights and obligations under this Lease will not be altered. 3. Early Termination. Tenant shall have the right to terminate this Lease by providing Landlord written notice at least six (6) months prior to the Commencement Date of this Lease, accompanied by a payment in the amount of the six (6) months' rent abatement provided to Tenant in the lease for the space located at 12636 High Bluff Drive, Suite 200, San Diego, CA 92130, and the lease commission for this Lease. 4. Building Signage. Tenant, at Tenant's expense, shall have the right to place its name and/or logo on one (1) side of the exterior of the Building in a location to be selected by Tenant, subject to approval by Landlord (not to be unreasonably withheld or delayed provided such signage complies with the signage criteria contained in the CC&R's affecting the Project) and all governmental agencies. This sign is in addition to the signage provided in the lease for 12636 High Bluff Drive, Suite 200. 5. Hazardous Materials. The following provisions are added to Exhibit H (Hazardous Materials): (i) Landlord's consent under clause (b) of Exhibit H shall not be required for (1) Hazardous Materials, in reasonable quantities, customarily used in business offices, and (2) Hazardous Materials used in reasonable quantities in connection with the construction of repair of Improvements in the Premises, provided such Hazardous Materials are used and handled in accordance with all applicable laws. In addition, Landlord will not unreasonably withhold or delay its consent required under said clause (b) of Exhibit H for any other Hazardous Materials reasonably needed by Tenant in the ordinary course of Tenant's business, provided such Hazardous Materials are used and 16 handled in accordance with all applicable laws. (ii) Landlord warrants to its actual knowledge Tenant that neither the Premises nor any other part of the Building in which the Premises are located contain any asbestos. Landlord also agrees that Tenant shall have no responsibility for any Hazardous Materials on or under the Premises, the Building, or the Project existing at the time of commencement of the Lease, or any such Hazardous Materials thereafter released on or under the Project by anyone other than Tenant, its employees or agents. 6. Building Codes: ADA. Any work that is required by applicable law now or hereafter in effect to be done within the Premises (excluding structural components (except to the extent caused by Tenant) and restrooms, elevators, and other common areas) shall be the sole responsibility of Tenant. Except as provided in the preceding sentence, and notwithstanding any other provision of this Lease, Tenant shall have no responsibility to make or pay for improvements or other alterations to the Building to correct deficiencies under existing building codes or other applicable laws, restrictions or requirements, or to comply with future changes in building codes or other applicable laws, restrictions or requirements. Without limiting the foregoing, in the event that any improvements or alterations to the Building are required during the term of the Lease to comply with requirements of the Americans With Disabilities Act or applicable building codes relating to access to or within the Building (except for the Premises) by disabled persons, Landlord will be solely responsible for any such improvements or alterations. 7. Security. With Landlord's prior written approval, not to be unreasonably withheld or delayed, Tenant at its cost and expense and not as part of the costs described in Addendum "5" may install additional reasonable security devices for the Premises. 8. Damage or Destruction. The following is inserted into the Lease as Paragraph 23: 23. DAMAGE OR DESTRUCTION If the Premises or any Common Areas providing access thereto shall be damaged by fire or other casualty, Landlord shall restore the same subject to the terms and conditions set forth in this Paragraph 23. Such restoration shall be to substantially the condition prior to the casualty, except for modifications required by zoning and building codes and other laws or by any mortgagee, any other modifications to the Common Areas deemed desirable by Landlord (provided access to the Premises is not materially impaired), and except that Landlord shall not be required to repair or replace any of Tenant's furniture, furnishings, fixtures or equipment, or any alterations or improvements in excess of Tenant's improvements installed at a cost of up to $30 per usable square 17 foot. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof. However, as Tenant's sole compensation for such damage or destruction Landlord shall allow Tenant a proportionate abatement of rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease and not occupied by Tenant as a result thereof (unless Tenant or its employees or agents caused the damage). Notwithstanding the foregoing to the contrary, Landlord may elect to terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage (such termination notice to include a termination date providing at least ninety (90) days for Tenant to vacate the Premises), if the Property shall be damaged by fire or other casualty or cause such that: (a) repairs to the Premises and Building and access thereto cannot reasonably be substantially completed within three hundred (300) days after the date of casualty without the payment of overtime or other premiums; (b) more than twenty-five percent (25%) of the Premises is substantially destroyed by the damage and fewer than twenty-four (24) months remain in the Term, subject to Tenant's right to avoid or limit such termination as set forth below; (c) the cost of the repairs, alterations, restoration or improvement work would exceed twenty-five percent (25%) of the replacement value of the Building and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; (d) the aggregate proceeds available from insurance fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; or (e) as a result of the lawful application of insurance proceeds by any mortgagee to retire the mortgage debt, the insurance proceeds available for restoration fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty. If Landlord elects to terminate this Lease under the circumstances described in Clause (b) of the preceding sentence, provided that the damage to the Property was not caused by the willful misconduct or reckless disregard for life or property of Tenant, Tenant may, by written notice to Landlord, given within thirty (30) days after receipt of Landlord's termination notice, avoid such termination by exercising a then available option to extend the term of this Lease upon the terms and conditions set forth in Addendum "3". Further, notwithstanding the foregoing, Tenant may terminate this Lease if Tenant is unable to use all or any portion of the Premises as a result of fire or other casualty not caused by the willful misconduct or reckless disregard for life or property of Tenant, and: (a) Landlord fails to commence restoration work to 18 the Building and access thereto within sixty (60) days after the damage occurs (Landlord's negotiation with insurance companies and consultation with architects, engineers and contractors shall be deemed to be restoration work); or (b) Landlord fails to substantially complete such work within three hundred sixty five (365) days after the date of the casualty, or such additional time as may be necessary due to strikes, lockouts or other labor troubles, shortages of equipment or materials, governmental requirements, power shortages or outages or other causes beyond Landlord's reasonable control; or (c) such work is reasonably estimated (which estimate Landlord shall provide within sixty (60) days following the casualty), to take more than three hundred sixty five (365) days to substantially complete after the date of the casualty. In addition, Tenant may terminate this Lease if Tenant is unable to use more than twenty-five percent (25%) of the Premises as a result of fire or other casualty not caused by the willful misconduct or gross negligence of Tenant or its employees or agents, and fewer than twenty-four (24) months remain in the Term. In order to exercise any of the foregoing termination rights, Tenant must send Landlord at least sixty (60) but not more than one hundred twenty (120) days advance notice specifying the basis for termination, and such notice must be given no later than thirty (30) days following the occurrence of the condition serving as the basis for the termination right invoked by Tenant. Such termination right shall not be available to Tenant if Landlord substantially completes the repairs to the Premises and access thereto within sixty (60) days after Tenant's notice. Notwithstanding anything to the contrary contained herein, if Tenant, or its officers, employees, contractors, invitees, partners, or agents delay Landlord in performing the repairs, Landlord shall have additional time to complete the work equal to such delay, and Tenant shall pay Landlord all Rent for the period of such delay. If this Lease is terminated pursuant to this Paragraph 23, Tenant shall have the right, to be exercised within 10 days of such termination, to terminate any other lease it has for space within the Project. Tenant agrees that Landlord's obligation to restore, and the abatement of rent and the termination right provided herein, shall be Tenant's sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to terminate the Lease by reason of damage to the Premises, Project or Building, including all rights under California Civil Code, Sections 1932(2), 1933(4), and 1942, as the same may be modified or replaced hereafter. Tenant acknowledges that this Paragraph 23 represents the entire agreement between the parties respecting damage to the Premises, Project or Building. 19 ADDENDUM "2" OPERATING EXPENSES. For the purposes of this Section, the following terms are defined as follows: Base Year-The calendar year in which this Lease Term commences. For the purposes of this Lease, the Base Year is defined as 1997. Comparison Year-Each calendar year of the term after the Base Year. Tenant's *----- Share of Operating Expenses shall be payable by Tenant to Landlord as follows: (a) Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal to Tenant's *----- Share of the Operating Expenses incurred by Landlord in the Comparison Year which exceeds the total amount of Operating Expenses payable by Landlord for the Base Year. This excess is referred to as the "Excess Expenses." (b) To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison Year, an amount equal to Tenant's *----- Share of the Excess Expenses payable during such Comparison Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's *----- Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. (c) On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's *----- Share of the Excess Expenses for the preceding Comparison Year. If Tenant's *----- Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within thirty (30) days of the receipt of the statement. If such total exceeds Tenant's *----- Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section shall survive the Expiration Date. (d) Tenant's *----- Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Operating Expenses by more than five percent (5%). (f) Operating Expenses including any additional real estate taxes will be based on a ninety-five percent (95%) leased project for the entire base year and other years regardless of the current occupancy. (g) In no event shall Tenant be responsible for increases in Operating Expenses in excess of six percent (6%) per year on a cumulative basis. * Percentage 20 ADDENDUM "3" OPTION TO RENEW. Tenant shall have the right to extend the term of this Lease for one (1) consecutive five (5) year period (the "Option Term"), on the following terms and conditions: (a) Each Option Term shall commence when the prior term expires. Tenant must give written notice of its exercise of the option, and Landlord must actually receive such notice, no earlier than twelve (12) months and no later than six (6) months prior to the time that the Option Term would commence. (b) The option(s) to extend this Lease for any Option Term must be exercised consecutively. (c) All terms and conditions of this Lease shall apply during the Option Terms except as expressly provided in this Addendum. (d) Tenant shall have no right to exercise an option, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any default *----- and continuing until the default is cured. (e) The period of time within which Tenant may exercise an option to extend the term of this Lease shall not be extended or enlarged by reason of Tenant's inability to exercise an option because of the provisions of Section (d) above. - ----------------------------------------------------------------------------- (g) The options granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant, without the prior written consent of Landlord. (h) The Base Monthly Rent during each option term shall be adjusted as of the commencement of each option term to ninety-five percent (95%) of the fair rental value of the Premises on the terms and conditions contained in this Lease as mutually agreed by Landlord and Tenant or, if they cannot agree on or before such commencement date, then as determined by an appraiser mutually selected by Landlord and Tenant. If Landlord and Tenant cannot agree on a single appraiser within five (5) days, then each shall select an appraiser. If the two appraisers cannot agree on said fair rental value within thirty (30) days, then the two appraisers shall appoint a third appraiser, and said fair rental value of the Premises shall be deemed to be the average of the two closest appraisals. Each appraiser shall be a disinterested member of the American Institute of Real Estate Appraisers, or a body of comparable standing, with at least five years' experience in commercial real estate appraisal. Landlord and Tenant shall each bear the cost of the appraiser appointed by them, and shall share equally the cost of the appraiser mutually selected by them or of the third appraiser appointed, if any. (i) Landlord will provide Tenant with a Ten Dollars ($10.00) per usable square foot refurbishment allowance. * in the payment of Base monthly Rent or Operating Expenses 21 ADDENDUM "4" RIGHT OF REFUSALS. (a) At any time that Landlord determines to lease any space at 12626 High Bluff Drive or 12636 High Bluff Drive, subject to any other existing tenants' rights of refusal or extension options, Landlord shall notify Tenant in writing. Within five (5) business days after receipt of Landlord's notice, Tenant shall have the option, to be exercised by delivery of written notice to Landlord, to lease the respective space. In the event Landlord notifies Tenant for multiple contiguous suites, then Tenant shall either lease none of the suites or all of the suites being offered. In the event Tenant timely exercises such option, the suites shall be added to the Premises, effective as of the date specified in Landlord's notice. In the event Tenant does not timely exercise such option, Tenant's rights shall terminate and shall not apply to any subsequent leasing of the space unless Landlord does not execute a lease for the space by a third party, in which case Tenant's rights shall be reinstated. (b) In the event Tenant timely exercises such option, such space shall be tendered to Tenant in "as is" condition. (c) In the event Tenant timely exercises such option, such space shall be subject to all of the terms and conditions of this Lease, provided that the Base Monthly Rent shall be One and 25/100 Dollar ($1.25) per square foot per month, plus electricity, and the Tenant's Share shall be proportionately increased to reflect the inclusion of such space in the Premises, and provided further that no free rent, abatement, discount, or other concession shall apply with respect to the space except if Tenant is currently in the free rent period, at which time the remaining free rent will apply. (d) Tenant shall have no right to exercise its right of refusal, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any default* under Section 25 of this Lease and continuing until the default is cured. (e) The period of time within which Tenant may exercise its right of refusal shall not be extended or enlarged by reason of Tenant's inability to exercise such right of refusal because of the provisions in Section (d) above. - ----------------------------------------------------------------------------- (g) The right of refusal granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant without the prior written consent of Landlord. * in the payment of Base Monthly Rent or Operating Expenses 22 EXHIBIT A OUTLINE OF FLOOR PLAN OR PREMISES [MAP OF CORPORATE PLAZA II FLOOR 4] 23 EXHIBIT B THE PROJECT [MAP] 24 EXHIBIT C NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE To: Date: ----------------------------------- ------------------ ----------------------------------- ----------------------------------- Re: Lease dated ______________________________ 19__, between_______________, Landlord, and_____________________________________ Tenant, concerning Suite ______________________________ located at__________________ Gentlemen: In accordance with the subject Lease, we wish to advise and/or confirm as follows: 1. That the Premises have been accepted herewith by the Tenant as being substantially complete in accordance with the subject Lease and that there is no deficiency in construction. 2. That the Tenant has possession of the subject Premises and acknowledges that under the provisions of the subject Lease the term of said Lease shall commence as of ______________________ for a term of _____________________ ending on _____________________________. 3. That in accordance with the subject Lease, rental commenced to accrue on _______________________________. 4. If the commencement date of the subject Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in said Lease. 5. Rent is due and payable in advance on the first day of each and every month during the term of said Lease. Your rent checks should be made payable to _________________________________ at_______________________________. 6. The exact number of rentable square feet within the Premises is _________________________________ square feet. 7. Tenant's Percentage, as adjusted based upon the exact number of rentable square feet within the Premises, is __________________ %. 25 AGREED AND ACCEPTED LANDLORD: TENANT __________________________________ ______________________________ By: By: __________________________________ ______________________________ By: ______________________________ C-1 26 EXHIBIT D STANDARDS FOR UTILITIES AND SERVICES The following Standards for Utilities and Services are in effect. Landlord reserves the right to adapt nondiscriminatory modifications and additions hereto. As long as Tenant is not in default under any of the terms, conditions, provisions or agreements of this Lease, Landlord shall: 1. Provide non-attended automatic elevator facilities Monday through Friday, except holidays from 8 A.M. to 6 P.M., and have one elevator available at all other times. 2. On Monday through Friday, except holidays from 7 A.M. to 6 P.M., and on Saturday mornings from 7 A.M. to 4 P.M. (and other times for an agreed upon rate of $15.00 per hour), ventilate the Premises and furnish air conditioning or heating on such days and hours, when in the reasonable judgment of Landlord it may be required for the comfortable occupancy of the Premises. The air conditioning system achieves maximum cooling when the window coverings are closed. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Premises closed whenever the system is in operation. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the building chilled and hot water air conditioning supply lines. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter mechanical installations or facilities of the building or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations under this section, including keeping window coverings closed as needed. Such work shall be charged at hourly rates equal to then-current journeymen's wages for air conditioning mechanics. 3. Landlord shall furnish to the Premises, during the usual business hours on business days, electric current as required by the building standard office lighting and fractional horsepower office business machines in an amount not to exceed .025 KWH per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, as established by an independent licensed engineer. Tenant agrees not to use any apparatus or device in, or upon, or about the Premises which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, 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 written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights therein granted for such breach. At all times Tenant's use of electric current shall never exceed the capacity of the feeders to the building or the risers or wiring installation and Tenants shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises without the prior written consent of Landlord. 4. Water will be available in public areas for drinking and lavatory purposes only, but if Tenant requires, uses or consumes water for any purposes in addition to ordinary drinking and lavatory purposes, of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as and when bills are rendered, and on default In making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such. 5. Provide janitor service to the Premises, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant, and if to be kept clean by Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they shall be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and by persons approved by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electric systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations or improvements, shall have been completed, and shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly understood and agreed that any convenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. 6. This Lease is a "plus electricity" lease in which Tenant shall pay for their use of electricity throughout the term of the Lease. Each floor of the project is separately metered, and Tenant shall pay directly to the utility company each month for their electrical consumption. D-1 27 EXHIBIT E TENANT ESTOPPEL CERTIFICATE The undersigned,______________________________________ ("Landlord"), with a mailing address c/o ______________________________________ and ______________________________________ ("Tenant"), hereby certify to ________, a ______________________________________, as follows: 1. Attached hereto is a true, correct and complete copy of that certain lease dated ___________, 19__, between Landlord and Tenant (the "Lease"), which demises premises located at _____________________. The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Paragraph 4 below. 2. The term of the Lease commenced on _______________________________ 19__. 3. The term of the Lease shall expire on _________________________, 19__. 4. The Lease has (Initial one): (____) not been amended, modified, supplemented, extended, renewed or assigned. (____) been amended, modified, supplemented, extended, renewed or assigned by the following described agreements copies of which are attached hereto: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 5. Tenant has accepted and is now in possession of said premises. 6. Tenant and Landlord acknowledge that the Lease will be assigned to _________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of _________________ is obtained, and that until further notice, payments under the Lease may continue as heretofore. 7. The amount of fixed monthly rent is $_________________. 8. The amount of security deposits (if any) is $ _________________. No other security deposits have been made. 9. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent under the Lease has been paid for more than thirty (30) days in advance of its due date. 10. All work required to be performed by Landlord under the Lease has been completed. 11. There are no defaults on the part of the Landlord or Tenant under the Lease. 12. Tenant has no defense as to its obligations under the Lease and claims no set-off or counterclaim against Landlord. 13. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies except as provided in the lease. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that _________________ is about to fund a loan to Landlord and that_________________ is relying upon the representations herein made in funding such loan. IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of_________________, 19___. LANDLORD: By: _________________ TENANT: By: _________________ By: _________________ E-1 28 EXHIBIT F RULES AND REGULATIONS 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the building or Project without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Project. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof(s) of the Project. 4. The directory of the building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Project and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Project for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 6. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7 If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 8. Freight elevator(s) shall be available for use by all tenants in the building, subject to such reasonable scheduling as Landlord, in its discretion, shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items shall, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the building. 9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 11. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. 12. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. 13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the building. 14. Landlord reserves the right to exclude from the building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the building of any person. Landlord reserves the right to prevent access to the building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the building or by Landlord for noncompliance with this rule. F1 29 16. Tenant shall not obtain for use on the Premises ice, drinking water, food, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such hours and under such regulations as may be fixed by Landlord. 17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 18. Tenant shall not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Project. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. 19. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof(s) or exterior walls of the building or Project. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 20. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises, or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord, Tenant shall repair any damage resulting from noncompliance with this rule. 21. Tenant shall not install, maintain or operate upon the premises any vending machines without the written consent of Landlord. 22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 23. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgement, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 24. Tenant shall store all its trash and garbage within its premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 25. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectional purpose. No cooking shall be done or permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted, provided that such equipment and use is in accordance with all applicable, federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Tenant shall not use in any space or in the public halls of the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the building or Project. 27. Without the written consent of Landlord, Tenant shall not use the name of the building or Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 28 Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 29. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 30. Tenant's requirements will be attended to only upon appropriate application to the Project management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 31. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. 32. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. 33. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 34. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. F-2 30 EXHIBIT G PARKING RULES AND REGULATIONS The following rules and regulations shall govern use of the parking facilities which are appurtenant to the Project. 1. All claimed damage or loss must be reported and itemized in writing delivered to the Management Office within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord has the option to make repairs at its expense of any claimed damage within two business days after filing of any claim. In all court actions the burden of proof to establish a claim remains with Tenant. Court actions by Tenant for any claim must be filed within ninety days from date of parking in court of jursidiction where a claimed loss occurred. Landlord is not responsible for damage by water, fire, or defective brakes, or parts, or for the act or omissions of others, or for articles left in the car. The total liability of Landlord is limited to $250.00 for all damages or loss to any car. Landlord is not responsible for loss of use. 2. Tenant shall not park or permit the parking of any vehicle under its company in any parking areas designated by Landlord as areas for parking by visitors to the Project. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or fourwheeled trucks. 3. Parking stickers or any other device or form of identification supplied by landlord as a condition of use of the Parking Facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. 4. No overnight or extended term storage of vehicles shall be permitted. 5. Vehicles must be parked entirely within painted stall lines of a single parking stall. 6. All directional signs and arrows must be observed. 7. The speed limit within all parking areas shall be 5 miles per hour. 8. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross-hatched areas; and (f) in such other areas as may be designated by Landlord or Landlord's Parking Operator. 9. Every parker is required to park and lock his own vehicle. All responsibility for damage to vehicles is assumed by the parker. 10. Loss or theft of parking identification devices from automobiles must be reported to the Management Office immediately, and a lost or stolen report must be filed by the customer at that time. Landlord has the right to exclude any car from the parking facilities that does not have an identification device. 11. Any parking identification devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution. 12. Lost or stolen devices found by the purchaser must be reported to the Management Office immediately to avoid confusion. 13. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 14. Parking Facility managers or attendants are not authorized to make or allow any exceptions to these Rules and Regulations. 15. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to any tenant or person and/or his agents or representatives who willfully refuse to comply with these Rules and Regulations and all unposted City, State or Federal ordinances, laws or agreements. 16. Landlord reserves the right to establish and change parking fees and to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the car to removal. G-1 31 EXHIBIT H HAZARDOUS MATERIALS THE FOLLOWING PROVISIONS DEALING WITH HAZARDOUS MATERIALS ARE MEANT TO BE IN ADDITION TO, AND NOT SUPERSEDE OR LIMIT, ANY OTHER PROVISIONS OF THIS LEASE WHICH MAY DEAL WITH THE SAME SUBJECT MATTER. (a) DEFINITION. "Hazardous Materials" shall mean any hazardous or toxic substance, material, or waste which is or becomes regulated by any local governmental authority, the State of California, or the United States Government, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous wastes" in the Comprehensive Environmental Responses, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq; the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901, et seq; the California Health & Safety Code; and any law, ordinance, or regulation dealing with underground storage tanks; and in the regulations adopted, published, and/or promulgated pursuant to said laws, and in any other environmental law, regulation, or ordinance now existing or hereinafter enacted (hereinafter "Hazardous Materials Laws"). (b) USE AND REMOVAL. (1) Tenant hereby agrees that Tenant shall not use, generate, manufacture, refine, process, store, or dispose of on, under, or about the Premises or transport to or from the Premises any Hazardous Materials, except with the written consent of Landlord in Landlord's sole discretion and in full compliance with applicable Hazardous Materials Laws. Tenant further acknowledges that Tenant does not intend to use the Premises in the future for the purpose of generating, manufacturing, refining, producing, storing, handling, transferring, processing, or transporting of Hazardous Materials. (2) If at any time during the term of this Lease, Hazardous Materials are used, or placed by Tenant on the Premises or Hazardous Materials are discovered by Tenant on the Premises where no prior consent of Landlord was obtained or otherwise in violation of any Hazardous Materials Laws, or if any contamination of the Premises shall occur, Tenant, at Tenant's sole cost and expense, shall immediately remove such Hazardous Materials from the Premises or from the ground or groundwater underlying the Premises in accordance with requirements of the appropriate governmental entity. Furthermore, Tenant 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 Tenant's use of the Premises, including, without limitation, discharge of (appropriately treated) materials or wastes into and through any sanitary sewer serving the Premises. (3) Except for discharges into the sanitary sewer in strict accordance and conformity with all applicable Hazardous Materials Laws, Tenant shall cause any and all permitted Hazardous Materials removed from the Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Tenant shall in all respects handle, treat, deal with, and manage any and all Hazardous Materials in, on, under, or about the Premises in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in or about the Premises nor enter into any settlement agreement, consent, decree, or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Premises without first notifying Landlord of Tenant's intention to do so and affording Landlord ample opportunity to appear, intervene, or otherwise appropriately assert and protect Landlord's interest with respect thereto. In addition to all other rights and remedies of Landlord hereunder, if such Hazardous Materials are not removed from the Premises or the ground or groundwater underlying the Premises by Tenant within fifteen (15) days after Landlord or Tenant discovers such Hazardous Materials, Landlord, at its sole discretion, may, but shall not be obligated to, pay to have the same removed, and Tenant shall reimburse Landlord within five (5) days of Landlord's demand for payment. (c) NOTICE. (1) 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 Hazardous Materials Laws; (ii) any claim made or threatened by any person against Tenant, or the Premises 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 or removed from the Premises, including any complaints, notices, warnings, or asserted violations in connection therewith, upon Tenant's receipt of actual knowledge of the above. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first H-1 32 receives or sends the same, with copies of all claims, reports, complaints, notices, warnings, or asserted violations relating in any way to the Premises, or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. (2) Tenant acknowledges that Tenant has been informed that Section 25359.7 of the California Health and Safety Code provides that any tenant of real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath the real property shall, upon discovery by the tenant of the presence or suspected presence of a hazardous substance release, give notice of that condition to the owner of the real property. Failure of the tenant to provide written notice as required to the owner shall make the lease voidable at the discretion of the owner. The Health and Safety Code provides that if the tenant has actual knowledge of the presence of any hazardous substance release and knowingly or willingly fails to provide written notice as required by the owner, the tenant is liable for a civil penalty not to exceed $5,000.00 for each violation. (d) INDEMNIFICATION. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord, and each and any of Landlord's shareholders, partners, officers, directors, employees, agents, attorneys, successors, and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses, or expenses (including actual attorneys fees and costs) or death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under, or about the Premises or discharge in or from the Premises of any Hazardous Materials placed or discharged in, on, or under the Premises by Tenant or 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; or (ii) Tenant's failure to comply with any Hazardous Materials Laws. Tenant's obligation 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 and the preparation and implementation of any closure, remedial action, or other required plans in connection therewith. For purpose of the indemnity provisions hereof, any acts or omissions of Tenant, or by employees, agents, assignees, subtenant, concessionaire, contractors, or subcontractors of Tenant or others acting for on behalf of Tenant (whether or not they are negligent, intentional, willful, or unlawful) shall be strictly attributable to Tenant. (e) SURVIVAL. All representations, warranties, obligations, and indemnities with respect to Hazardous Materials shall survive the termination of this Lease. SECTION 10.2. WASTE MANAGEMENT REQUIREMENTS. Without limiting any other obligations of Tenant under this Lease, Tenant covenants and agrees to comply with all laws, rules, regulations, and guidelines now or hereafter made applicable to the Premises respecting the disposal of waste, trash, garbage, and other matter (liquid or solid), generated by Tenant, the disposal of which is not otherwise the express obligation of Landlord under this Lease, including, but not limited to, laws, rules, regulations, and guidelines respecting recycling and other forms of reclamation (all of which are herein collectively referred to as "Waste Management Requirements"). Tenant hereby covenants and agrees to comply with all rules and regulations established by Landlord to enable Landlord from time to time to comply with Waste Management Requirements applicable to Landlord (i) as owner of the Premises, and (ii) in performing Landlord's obligations under this Lease, if any. Tenant covenants and agrees to indemnify, defend, protect, and hold Landlord harmless from and against all liability (including costs, expenses, and attorneys' fees) that Landlord may sustain by reason of Tenant's breach of its obligations under this Section 10.2. Tenant obligations under this Section 10.2 shall survive the termination of this Lease. H-2 EX-10.15 6 EXHIBIT 10.15 1 EXHIBIT 10.15 OFFICE BUILDING LEASE TABLE OF CONTENTS
SECTION PAGE 1. Basic Lease Terms ...................................... 1 2. Premises and Common Areas Leased ....................... 2 3. Term ................................................... 2 4. Possession ............................................. 2 5. Rent ................................................... 3 6. Rental Adjustment ...................................... 3 7. Security Deposit ....................................... 4 8. Use .................................................... 4 9. Notices ................................................ 5 10. Brokers ................................................ 5 11. Holding Over ........................................... 5 12. Taxes on Tenant's Property ............................. 5 13. Condition of Premises .................................. 5 14. Alterations ............................................ 5 15. Repairs ................................................ 6 16. Liens .................................................. 6 17. Entry By Landlord ...................................... 6 18. Utilities and Services ................................. 6 19. Bankruptcy ............................................. 7 20. Indemnification and Exculpation of Landlord ............ 7 21. Damage to Tenant's Property ............................ 7 22. Tenant's Insurance ..................................... 7 23. Damage or Destruction .................................. 8 24. Eminent Domain ......................................... 9 25. Defaults and Remedies .................................. 9 26. Assignment and Subletting .............................. 10 27. Subordination .......................................... 10 28. Estoppel Certificate ................................... 11 29. Building Planning ...................................... 11 30. Rules and Regulations .................................. 11 31. Conflict of Laws ....................................... 11 32. Successors and Assigns ................................. 11 33. Surrender of Premises .................................. 11 34. Professional Fees ...................................... 11 35. Performance by Tenant .................................. 11 36. Mortgagee Protection ................................... 12 37. Definition of Landlord ................................. 12 38. Waiver ................................................. 12 39. Identification of Tenant ............................... 12 40. Parking ................................................ 12 41. Force Majeure .......................................... 12 42. Terms and Headings ..................................... 12 43. Examination of Lease ................................... 12 44. Time ................................................... 12 45. Prior Agreement or Amendments .......................... 12 46. Separability ........................................... 13 47. Recording .............................................. 13 48. Limitation on Liability ................................ 13 49. Modification For Lender ................................ 13 50. Financial Statements ................................... 13 51. Quiet Enjoyment ........................................ 13 52. Tenant as Corporation .................................. 13 53. Work Letter Agreement .................................. 14 Exhibits A Outline of Floor Plan or Premises B The Project C Notice of Lease Term Dates and Tenant's Percentage D Standards for Utilities and services E Tenant Estoppel Certificate F Rules and Regulations G Parking Rules and Regulations H Hazardous Materials
2
OFFICE LEASE 1. BASIC LEASE TERMS. a. DATE OF LEASE EXECUTION: March 22, 1994 ------------------------------------------------------------------------------- b. TENANT STAC Electronics, a California corporation ------------------------------------------------------------------------------------------------ Trade Name: ------------------------------------------------------------------------------------------- Address (leased Premises): 12636 High Bluff Drive --------------------------------------------------------------------------- San Diego, CA 92130 ------------------------------------------------------------------------------------------------------ Floor(s) upon which the Premises are Located: Second (2nd) Suite Number(s): 200 -------------------------- ------------- Address (For Notices): 12636 High bluff Drive, Suite 400 ------------------------------------------------------------------------------ San Diego, CA 92130 ------------------------------------------------------------------------------------------------------ c. LANDLORD: Weyerhaeuser Mortgage Company, a California corporation and Fort Wayman, Inc. ----------------------------------------------------------------------------------------------- Address (For Notices): c/o Weyerhaeuser Mortgage Company, 6320 Canoga Avenue, Woodland Hills, CA 91367 --------------------------------------------------------------------------------- with a copy to Voit Management, 12626 High bluff Drive, Suite 350, San Diego, CA 92130 or to such other place as Landlord may from time to time designate by notice to Tenant. d. PREMISES AREA: Approximately Thirteen Thousand Six Hundred Eight-Six (13,686) Rentable Square Feet ----------------------------------------------------- e. PROJECT AREA: Fifty-Eight Thousand Ninety-Six (58,096) Rentable Square Feet -------------------------------------------------------------------- f. TENANT PERCENTAGE: 23.56 % ------- g. TERM OF LEASE: The term of this Lease shall be for the approximately sixty-six (66) months ---------------------------------------------------- commencing upon the earlier of: ------------------------------------------------------------------------------------------------------ (2) The date that Tenant opened for business in the Premises, or (3) September 6, 1994, * ----------- -- Reference in this lease to a "Lease Year" shall mean each successive twelve month period commencing with the first day of the month in which the term of this Lease commences. h. BASE MONTHLY RENT: $ Seventeen Thousand One Hundred Seven and 50/100 Dollars ($17,107.50) ----------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- j. ANNUAL OPERATING EXPENSE ALLOWANCE: See Addendum "2." ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- k. PREPAID RENT: $ 17,107.50 ** --------------------- l. TOTAL SECURITY DEPOSIT: $17,107.50, including a $ -0- non-refundable cleaning fee. ** --------- ---- m. TENANT IMPROVEMENT ALLOWANCE: -- See Addendum "5."--defined in the Work Letter Agreement). n. TENANT'S USE OF PREMISES: General office use ------------------------------------------------------------------------------ o. PARKING: Fifty-seven (57) spaces, including six (6) covered and reserved, free of charge. ---------------- p. BROKER(S): CB Commercial Real Estate Group, Inc. and Business Real Estate Brokerage Company, Inc. -------------------------------------------------------------------------------------------- q. BROKERAGE COMMISSION PAYABLE BY: Landlord --------------------------------------------------------------------- r. GUARANTOR(S) None ------------------------------------------------------------------------------------------ s. ADDITIONAL SECTIONS Additional Sections of this lease numbered Addenda "1" through "5" --- are attached hereto and made a part hereof. t. ADDITIONAL EXHIBITS Additional exhibits letters H --- are attached hereto and made a part hereof. KOL 3/88 * except as such September 6, 1994 date shall be extended for Landlord caused delays and delays due to the Premises being physically inaccessible through no fault of Tenant, and expiring March 5, 2000. ** See Addendum "5" *** a Michigan corporation, tenants in common.
3 Section 1 represents a summary of the basic terms of this Lease. In the event of any inconsistency between the terms contained in Section 1 and any specific clause of this Lease, the terms of the more specific clause shall prevail. The parties hereto agree that said letting and hiring is upon and subject to the terms, convenants and conditions herein set forth. Tenant covenants, as a material part of the consideration for this Lease to keep and perform each and all of said terms, convenants and conditions for which tenant is liable and that this Lease is made upon the condition of such performance. 2. PREMISES AND COMMON AREAS LEASED. a. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises described in Section 1 and in Exhibit A attached hereto (the "Premises"). ---------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - --------------------------- Landlord and Tenant stipulate that for purposes of this Lease the Premises contain 13,686 rentable square feet and the Project contains 58,096 rentable square feet. b. The Premises are contained within the building at the address designated in Section 1 located in the Project described on Exhibit B attached hereto (the "Project"). c. Tenant's Percentage of the Project is stipulated to be 23.56%.------------ - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- d. Tenant shall have the nonexclusive right to use in common with other tenants in the Building and the Project and subject to the Rules and Regulations referred to in Paragraph 30 below the following areas ("Common Areas") appurtenant to the Premises: (1) The Building's common entrances, lobbies, restrooms, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises; (2) Loading and unloading areas, trash areas, parking areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities appurtenant to the Building. e. Landlord reserves the right from time to time without unreasonable interference with Tenant's use: (1) To install, use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building or Project; (2) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (3) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available: (4) To designate other land outside the boundaries of the Building or Project to be a part of the Common Areas; (5) To add additional buildings and improvements to the Common Areas; (6) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or the Project, or any portion thereof; (7) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas, the Building or the Project as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 3. TERM. The term of this Lease shall be for the period designated in Section 1, commencing on the Commencement Date, and ending on the expiration of such period, unless the term hereby demised shall be sooner terminated as hereinafter provided. If not specifically designated in Section 1, the Commencement Date, the date upon which the term of this Lease shall end, the rentable square feet within the Premises and Tenant's Percentage shall be determined in accordance with the provisions of Paragraph 2 and will be specified in Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "C" which is attached hereto and is incorporated herein by this reference, and shall be served upon Tenant as provided in Paragraph 9. The Notice shall be binding upon Tenant unless Tenant objects to the Notice in writing, served upon Landlord as provided for in Paragraph 9 hereof, within five (5) days of Tenant's receipt of the Notice. ----------------------- - ----------------------------------------------------------------------------- 2 4 5. RENT. a. Tenant shall pay Landlord monthly base rent in the initial amount set forth in Section 1 which shall be payable monthly in advance on the first day of each and every calendar month ("Base Monthly Rent") provided, however, the first month's rent shall be due and payable upon execution of this lease. - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- d. All rent shall be paid by Tenant to Landlord monthly in advance on the first day of every calendar month, at the address shown in Section 1, or such other place as Landlord may designate in writing from time to time. All rent shall be paid without prior demand or notice and without any deduction or offset whatsoever. All rent shall be paid in lawful currency of the United States of America. All rent due for any partial month shall be prorated at the rate of 1/30th of the total monthly rent per day. Tenant acknowledges that late payment by Tenant to Landlord of any rent or other sums due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to ascertain. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by the Premises. Therefore, if any rent or other sum due from Tenant is not received when due, Tenant shall pay to landlord an additional sum equal to 10% of such overdue payment. Landlord and Tenant hereby agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment. Additionally, all such delinquent rent or other sums, plus this late charge, shall bear interest at the then maximum lawful rate permitted to be charged by Landlord. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $25.00, and thereafter, Landlord may require Tenant to pay all future payments of rent or other sums due by money order or cashier's check. e. Upon the execution of the Lease, Tenant shall pay to Landlord the prepaid rent set forth in Section 1, and if Tenant is not in default of any provisions of the Lease, such prepaid rent shall be applied toward the rent due for the first month of the term. Landlord's obligations with respect to the prepaid rent are those of a debtor and not of a trustee, and Landlord can commingle the prepaid rent with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the prepaid rent. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid rent; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid rent. - ----------------------------------------------------------------------------- g. "For purposes of Section 467 of the Internal Revenue Code, the parties to this lease agreement hereby agree to allocate the stated rents, provided herein, to the periods which correspond to the actual rent payments as provided under the terms and conditions of this agreement." 6. RENTAL ADJUSTMENT. a. For the purposes of this Paragraph 6, the following terms are defined as follows: (1) Tenant's Percentage shall mean that portion of the total rentable area of the Project occupied by Tenant as set forth as a percentage in Section 1. - ----------------------------------------------------------------------------- (3) Operating Expenses shall consist of all direct costs of operation and maintenance of the Project and the Common Areas, including any expansions to the Common Areas by Landlord ("Operating Expenses"), as determined by standard accounting practices, calculated assuming the Project is fully occupied, including the following costs by way of illustration, but not limitation: any and all assessments Landlord must pay for the Project pursuant to any covenants, conditions or restrictions, reciprocal easement agreements, tenancy-in-common agreements or similar restrictions and agreements affecting the Building or the Project; real property taxes and assessments and any taxes or assessments hereafter imposed in lieu thereof; rent taxes, gross receipt taxes (whether assessed against Landlord or assessed against Tenant and paid by Landlord, or both); water and sewer charges; accounting; legal and other consulting fees; the net cost and expense of insurance for which Landlord is responsible hereunder or which Landlord or any first mortgagee with a lien affecting the Premises reasonably deems necessary in connection with the operation of the Project; utilities; janitorial services; security; labor; parking charges, utilities surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations or interpretations thereof, promulgated by any federal, state, regional, municipal or local government authority in connection with the use or occupancy of the Project or the Premises or the parking facilities serving the Project or the Premises; the cost (amortized over such reasonable period as Landlord shall determine together with interest at the maximum rate allowed by law on the unamortized balance) of any capital improvements made to the Project or the Common Areas by the Landlord in order to comply with any governmental requirements not in existence as of the date of this Lease or designed to reduce Operating Expenses, or replacement of any building equipment needed to operate the Building or the Common Areas at the same quality levels as prior to the replacement; costs incurred in the management of the Project, if any (including supplies, wages and salaries of employees used in the management, operation and maintenance of the Project, and payroll taxes and similar governmental charges with respect thereto, Project management office rental, a management fee and, in the event Landlord is directly participating in the administration of the Project, an administrative fee in the amount of Landlord's actual expenses, such administrative fee not to exceed fifteen percent (15%) of the annual Operating Expenses excluding therefrom such fee); air conditioning; waste disposal; heating; ventilating; elevator maintenance; supplies; materials; equipment; tools; repair and maintenance of the structural portions of the Project, including the plumbing, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord; maintenance costs, including utilities and payroll expenses, rental of personal property used in maintenance, and all other upkeep of all parking and Common Areas; costs and expenses of 3 5 gardening and landscaping; maintenance of signs (other than Tenant's signs); personal property taxes levied on or attributable to personal property used in connection with the entire Project, including the Common Areas; reasonable audit or verification fees; and costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal, security and similar items, including appropriate reserves. Operating Expenses shall not include depreciation on buildings or equipment therein, Landlord's executive salaries or real estate brokers' commissions. (4) As used herein, the term "real property taxes" shall include any form of assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, penalty, tax or similar imposition, imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, including, but not limited to, the following: (a) any tax on Landlord's "right" to other income from the Premises or as against Landlord's business of leasing the Premises; (b) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real estate tax, including but not limited to, any assessments, taxes, fees, levies and charges that may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of "real property taxes" for the purposes of this Lease; (c) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax or excise tax levied by the State, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (d) any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. Notwithstanding any provision of this paragraph 6 expressed or implied to the contrary, "real property taxes" shall not include Landlord's federal or state income, franchise, inheritance or estate taxes. - ------------------------------------------------------------------------------ c. Even though the term has expired and Tenant has vacated the Premises, when final determination is made of Tenant's Percentage of Operating Expenses for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall be rebated by Landlord to Tenant. 7. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit with Landlord the amount of the security deposit set forth in Section 1 in part as security for the performance by Tenant of the provisions of this Lease.-----If tenant is in default, Landlord can use the security deposit or any portion of it to cure the default or to compensate Landlord for all damage sustained by landlord resulting from Tenant's default. Upon demand, Tenant shall immediately pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord to maintain the security deposit in the amount initially deposited with Landlord. In no event will Tenant have the right to apply any part of the security deposit to any rent or other sums due under this Lease. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the entire security deposit to Tenant.--------------- Landlord's obligations with respect to the deposit are those of a debtor and not of a trustee, and Landlord can commingle the security deposit with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the deposit. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid deposit; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid deposit. Should Landlord sell its interest in the Premises during the term hereof and if Landlord deposits with the purchaser thereof the then unappropriated funds deposited by Tenant as aforesaid, thereupon Landlord shall be discharged from any further liability with respect to the Security Deposit. 8. USE. Tenant shall use the Premises for the uses set forth in Section 1 above, and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building. Tenant shall not use or occupy the Premises in violation of law or of the Certificate of Occupancy issued for the Building, and shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of said Certificate of Occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant shall comply with all rules, orders, regulations and requirements of the Insurance Service Office or any other organization performing a similar function. Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Paragraph. Tenant shall not do or permit anything to be done in or about the Premises 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 improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about 4 6 the Premises. Tenant shall comply with all restrictive covenants and obligations created by private contracts which affect the use and operation of the Premises, the Building, the Common Area or the Project. Subject to Paragraph 23 hereof, tenant shall not commit or suffer to be committed any waste in or upon the Premises and shall keep the Premises in first class repair and appearance normal wear and tear excepted. Landlord reserves the right to prescribe the weight and position of all files, safes and heavy equipment which Tenant desires to place in the Premises so as to properly distribute the weight thereof. Further, Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the building structure or to any other space in the building shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. Tenant shall be responsible for all engineering required to determine structural load. 9. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery or by mail, and if given by mail shall be deemed sufficiently given if sent by registered or certified mail addressed to Tenant at the address(es) designated in Section 1 or to Landlord at both of the addresses designated in Section 1. Either party may specify a different address for notice purposes by written notice to the other. 10. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for those certain brokers whose names are set forth in Section 1 and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. If Tenant has dealt with any other person or real estate broker with respect to leasing or renting space in the Project, Tenant shall be solely responsible for the payment of any fee due said person or firm and Tenant shall hold Landlord free and harmless against any liability in respect thereto, including attorneys' fees and costs. 11. HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant shall become a Tenant at sufferance only, at a rental rate equal to the greater of Landlord's scheduled rent for the space or one hundred twenty-five percent (125%) of the rent in effect upon the date of such expiration (subject to adjustment as provided in Paragraph 6 hereof and prorated on a daily basis), and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. The foregoing provisions of this Paragraph 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender and any attorneys fees and costs. 12. TAXES ON TENANT'S PROPERTY. a. Tenant shall be liable for and shall pay at least ten (10) days before delinquency all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment. - ------------------------------------------------------------------------------- 13. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the building or the Project or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the building were in satisfactory condition at such time. Without limiting the foregoing, Tenant's execution of the Notice attached hereto as EXHIBIT "C" shall constitute a specific acknowledgement and acceptance of the various start-up inconveniences that may be associated with the use of the Common Areas such as certain construction obstacles including scaffolding, delays in use of freight elevator service, certain elevators not being available to Tenant, the passage of work crews using elevators, uneven air conditioning services and other typical conditions incident to recently constructed office buildings. 14. ALTERATIONS a. Tenant shall make no alterations, additions or improvements in or to the Premises without Landlord's prior written consent,* and then only by contractors or mechanics approved by Landlord; such consents and approvals by Landlord shall not be unreasonably withheld or delayed Tenant shall submit to Landlord plans and specifications for any proposed alterations, additions or improvements to the Premises, and may not make such alterations, additions or improvements until Landlord has approved of such plans and specifications. Tenant shall construct such alterations, additions or improvements in accordance with the plans and specifications approved by Landlord, and shall not amend or modify such plans and specifications without Landlord's prior written consent. If the proposed change requires the consent or approval of any lessor of a superior lease, or the holder of a mortgage encumbering the Premises, such consent or approval must be secured prior to the construction of such alteration, addition or improvement and Landlord agrees to cooperate in obtaining any such consent or approval. Tenant agrees that there shall be no construction of partitions or other obstructions which might interfere with Landlord's free access to mechanical installations or service facilities of the building or interfere with the moving of Landlord's equipment to or from the enclosures containing said installations or facilities. All such work shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all laws, rules, orders, ordinances, regulations and requirements of all governmental agencies, offices and boards having jurisdiction, and in full compliance with the rules, regulations and requirements of the Insurance Service Office, and of any similar body. Before commencing any work, Tenant shall give Landlord at least ten (10) days written notice of the proposed commencement of such work and shall, if required by Landlord, ** secure at Tenant's own *unless such alterations, additions, or improvements are less than a cost of Five Thousand and No/100 Dollars ($5,000.00), **and other than for the work described in the Work Letter Agreement of even date herewith 5 7 cost and expense, a completion and lien indemnity bond satisfactory to Landlord for said work if said work costs more than $100,000. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within (10) ten days after the filing thereof, at the cost and expense of Tenant. All alterations, additions or improvements upon the Premises made by either party, including (without limiting the generality of the foregoing) all wall covering, built-in cabinet work, paneling and the like, shall, become the property of Landlord, and shall remain upon, and be surrendered with the Premises, as a part thereof, at the end of the term hereof.) b. All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the lease term. If Tenant shall fail to remove all of its effects from the Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof. In such event, Tenant agrees to pay Landlord upon demand any and all expenses incurred in such removal, including court costs and attorneys' fees and storage charges on such effects, for any length of time that the same shall be in Landlord's possession. Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale upon any amounts due under this Lease from Tenant to Landlord and upon the expense incident to the removal and sale of said effects. 15. REPAIRS. a. By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair. Subject to Paragraph 23 hereof Tenant shall keep, maintain and preserve the Premises in first class condition and repair, normal wear and tear excepted and shall, when and if needed, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof. Tenant shall, upon the expiration or sooner termination of the term hereof, surrender the Premises to Landlord in the same condition as when received, usual and ordinary wear and tear excepted. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. The parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises, the building, the Project or the Common Area except as specifically herein set forth. b. Anything contained in Paragraph 15a above to the contrary notwithstanding, Landlord shall repair and maintain the structural portions of the building and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 23 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 16. LIENS. Tenant shall not permit any mechanics', materialmens' or other liens to be filed against the building or the Project nor against Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payments in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest at the maximum rate per annum permitted by law from the date of such payment by Landlord. 17. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times (except as provided below) have the right to enter the Premises to inspect the same upon reasonable prior notice to Tenant, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants upon reasonable prior notice to Tenant, to post notices of nonresponsibility, to alter improve or repair the Premises or any other portion of the Building* all without being deemed guilty of any eviction of Tenant and without abatement of rent. Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, provided that the business of Tenant shall be interfered with as little as reasonably practicable. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. 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 to the Premises obtained by Landlord by any of said means, or otherwise, shall not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant. It is understood and agreed that no provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein by Landlord. 18. UTILITIES AND SERVICES. Provided that Tenant is not in default under this Lease, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services, attached hereto as EXHIBIT "D", subject to the conditions and in accordance with the standards set forth therein. Landlord's failure to furnish any of the foregoing items when such failure is caused by (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or by (v) any other cause beyond Landlord's reasonable control, shall not result in any liability to Landlord. In addition, Tenant shall not be entitled to any abatement or reduction of rent by reason of such failure, no eviction of Tenant shall result from such failure and Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord shall diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, Landlord may at its option require Tenant to pay, as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage. In addition, Landlord may install separate meter(s) for the Premises, at Landlord's sole expense, and Tenant thereafter shall pay all charges of the utility providing service and Landlord shall make an appropriate adjustment to account for the fact Tenant is directly paying such metered charges. * (with reasonable prior notice to Tenant for non-routine repairs and maintenance) 6 8 19. BANKRUPTCY. If Tenant shall file a petition in bankruptcy under any provision of the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within thirty (30) days from the date thereof, or if a receiver or trustee shall be appointed of Tenant's property and the order appointing such receiver of trustee shall not be set aside or vacated within thirty (30) days after the entry thereof, or if Tenant shall assign Tenant's estate or effects for the benefit of creditors, then in any such event Landlord may terminate this Lease, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord. In such case, notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall, upon such termination, be entitled to recover damages in the amount provided in Paragraph 25b hereof. Neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or order of any court shall be entitled to possession of the Premises but shall surrender the Premises to Landlord. Nothing contained herein shall limit or prejudice the right of Landlord to recover damages by reason of any such termination equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved; whether or not such amount is greater, equal to or less than the amount of damages recoverable under the provisions of this Paragraph 19. 20. INDEMNIFICATION AND EXCULPATION OF LANDLORD. a. Tenant shall indemnify, defend and hold Landlord harmless from 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, the Building, the Project or the Common Area.** Tenant shall further indemnify, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the terms of this Lease, or arising from any act, neglect, fault or omission of Tenant or of its agents or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to person in, upon or about the Premises from any cause whatsoever except that which is caused by the failure of Landlord to observe any of the terms and conditions of this Lease where such failure has persisted for an unreasonable period of time after written notice of such failures. Tenant hereby waives all its claims in respect thereof against Landlord. b. Neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable to Tenant or its partners, directors, officers, contractors, agents, employees, invitees, sublessees or licensees, for any loss, injury or damage to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss, unless solely caused by or solely resulting from the gross negligence or willful misconduct of Landlord or its employees or agents in the operation or maintenance of the Premises, the building, or the Project without contributory negligence on the part of Tenant or any of its sublessees or licensees or its or their employees, agents or contractors, or any other lessees or occupants of the building or Project. Further, neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable (i) for any such damage caused by other lessees or persons in or about the building or Project, or caused by quasi-public work; or (ii) for consequential damages arising out of any loss of the use of the Premises of any equipment or facilities therein by Tenant or any person claiming through or under Tenant. 21. DAMAGE TO TENANT'S PROPERTY. * Notwithstanding the provisions of Paragraph 20 to the contrary, Landlord or its agents shall not be liable for (i) any damage to any property entrusted to employees of the building or Project, (ii) loss or damage to any property by theft or otherwise, (iii) 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 the building or from the pipes, appliances or plumbing work therein or from the roof, street or sub-surface or from any other place or resulting from dampness or any other cause whatsoever. Landlord or its agents shall not be liable for interference with light or other incorporeal hereditaments, nor shall Landlord be liable for any latent defect in the Premises or in the building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the building or of defects therein or in the fixtures or equipment. 22. TENANT'S INSURANCE. a. Tenant shall, during the term hereof and any other period of occupancy, at its sole cost and expense, keep in full force and effect the following insurance: (1) Standard form property insurance insuring against the perils of fire, extended coverage, vandalism, malicious mischief, special extended coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon all property owned by Tenant, for which Tenant is legally liable or that was installed at Tenant's expense, and which is located in the Project including, without limitation, furniture, fittings, installations, fixtures (other than Tenant improvements installed by Landlord), and any other personal property, in an amount not less than ninety percent (90%) of the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord or any mortgagees of Landlord shall be conclusive. This insurance policy shall also be upon direct or indirect loss of Tenant's earnings attributable to Tenant's inability to use fully or obtain access to the Premises, Building or Project in an amount as will properly reimburse Tenant. Such policy shall name Landlord and any mortgagees of Landlord as insured parties, as their respective interests may appear. (2) Comprehensive General Liability Insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $1,000,000 Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with such liability amount to be adjusted from year to year to reflect increases in the Consumer Price Index. The policy shall insure the hazards of the Premises and Tenant's Operations thereon, independent contractors, contractual liability (covering the indemnity contained in Paragraph 20 hereof) and shall (a) name Landlord as an additional insured, (b) contain a cross liability provision and (c) contain a provision that the insurance provided the Landlord hereunder shall be primary and non-contributing with any other insurance available to the Landlord. (3) Workers' Compensation and Employer's Liability insurance (as required by state law). (4) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would protect itself. b. All policies shall be written in a form satisfactory to Landlord and shall be taken out with insurance companies holding a General Policyholders Rating of "A" and a Financial Rating of "X" or better, as set forth in the most current issue of Best's Insurance Reports. Within ten (10) days after the execution of this Lease, Tenant shall deliver to Landlord copies of policies or certificates evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancellable or reducible in coverage except after thirty (30) days prior written notice to Landlord. Tenant shall, within ten (10) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as additional rent. If Landlord obtains any insurance that is the responsibility of Tenant under this Paragraph, Landlord shall deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed. * Except to the extent of Landlord's or its employees' or agents' gross negligence or willful misconduct, 7 ** Except to the extent of Landlord's or its employees' or agents' negligence or willful misconduct, 9 c. During the term of this Lease, Landlord shall insure the Building (excluding any property which Tenant is obligated to insure under Subparagraphs 22a and b hereof) against damage with All-Risk insurance and public liability insurance, all in such amounts and with such deductions as Landlord considers appropriate. Upon written request of Tenant with reference to this Subparagraph 22c, Landlord shall provide Tenant with a copy of a certificate of Landlord's insurance. Landlord may, but shall not be obligated to, obtain and carry any other form or forms of insurance as it or Landlord's mortgagees may determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums, as provided herein, Tenant acknowledges that it has no right to receive any proceeds from any insurance policies carried by Landlord. d. Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as additional rent within ten (10) days after being billed therefore by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Tenant Improvements showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. e. If any of Landlord's insurance policies shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage, threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within forty-eight (48) hours after notice thereof, Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry. If Landlord is unable, or elects not to remedy such condition, then Landlord shall have all of the remedies provided for in this Lease in the event of a default by Tenant. Notwithstanding the foregoing provisions of this Subparagraph 22e, if Tenant fails to remedy as aforesaid, Tenant shall be in default of its obligation hereunder and Landlord shall have no obligation to remedy such default. f. All policies of insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by policies of insurance containing such a waiver of subrogation of clause or endorsement to the extent of the injury or loss covered thereby. See Addendum "1" Item 8. ------------------------------- - ----------------------------------------------------------------------------- 8 10 24. EMINENT DOMAIN. a. In case all of the Premises, or such part thereof as shall substantially interfere with Tenant's use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking, and Landlord shall be entitled to receive the entire amount of any award without deduction for any estate or interest of Tenant. In the event the amount of property or the type of estate taken shall not substantially interfere with the conduct of Tenant's business, Landlord shall be entitled to the entire amount of the award without deduction for any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition prior to such partial taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant or for moving expenses or for the unamortized portion of tenant improvements paid for by Tenant. b. In the event of taking of the Premises or any part thereof for temporary use, (1) this Lease shall be and remain unaffected thereby and rent shall not abate, and (2) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under Paragraph 15 with respect to surrender of the Premises and upon such payment shall be excused from such obligations. For purpose of this Subparagraph 24b, a temporary taking shall be defined as a taking for a period of 270 days or less. 25. DEFAULTS AND REMEDIES. a. The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (1) The ------------------------ abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for ten (10) business days or longer while in default of any provision of this Lease. (2) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, ---------------- within five days after notice to Tenant that such payment is due. (3) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraph 25a.(1) or (2) above, where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant. If the nature of Tenant's default is such that more than ten (10) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within said ten (10) day period and thereafter diligently prosecute such cure to completion. (4) The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. * b. In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (1) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (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 Tenant proves could have been reasonable avoided, plus (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 that Tenant proves could be reasonably avoided; plus (4) any other amount necessary to compensate Landlord for all the 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. As used in Subparagraphs 25b (1) and (2) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law. As used in Subparagraph 25b (3) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). c. In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this paragraph 25c shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. d. In the event of the ------------- abandonment of the Premises by Tenant or in the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided above, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof for the term for this Lease on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such relenting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises, fourth, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder then Tenant * (5) A default by Tenant under the lease of even date herewith with Landlord for Suite 400. 9 11 shall pay such deficiency to Landlord immediately upon demand therefore by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred, including but not limited to brokers' commissions, by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. e. All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver. The consent or approval of Landlord to or 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 similar acts by Tenant. 26. ASSIGNMENT AND SUBLETTING. a. Tenant shall not voluntarily assign or encumber 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 prior written consent which shall not be unreasonably withheld or delayed. Any assignment, encumbrance or sublease without Landlord's prior written consent shall be voidable at Landlord's election and shall constitute a default. ----------------- No consent to an assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this Paragraph. Tenant shall notify Landlord in writing of Tenant's intent to assign, encumber or sublease this Lease, the name of the proposed assignee or sublessee, information concerning the financial responsibility of the proposed assignee or sublessee and the terms of the proposed assignment or subletting, and Landlord shall, within thirty (30) days of receipt of such written notice, and additional information requested by Landlord concerning the proposed assignee's or sublessee's financial responsibility, elect one of the following: (1) consent to such proposed assignment, encumbrance or sublease; or (2) refuse such consent, which refusal shall be on reasonable grounds; ---------------- In addition, a condition to Landlord's consent to any assignment, transfer or hypothecation of this Lease shall be the delivery to Landlord of a true copy of the fully executed instrument of assignment, transfer or hypothecation, and the delivery to Landlord of an agreement executed by the assignee in form and substance satisfactory to Landlord and expressly enforceable by Landlord, whereby the assignee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. b. As a condition to Landlord's consent to any sublease, such sublease shall provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (1) terminate the sublease or (2) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee shall attorn to Landlord, but that nevertheless Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. c. In the event that Landlord shall consent to an assignment or sublease under the provisions of this Paragraph 26, Tenant shall pay Landlord's processing costs and attorneys' fees incurred in giving such consent. If Landlord shall consent to any assignment of this Lease, Tenant shall pay to Landlord, as additional rent, * ------------- of all sums and other considerations payable to and for the benefit of Tenant by the assignee on account of the assignment, as and when such sums and other consideration ** are due and payable by the assignee to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant's liability for the same, Tenant shall instruct the assignee to pay such sums and other consideration directly to Landlord). If for any proposed sublease Tenant receives rent or other consideration, either initially or over the term of the sublease, in excess of the rent called for hereunder or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account. Tenant shall pay to Landlord as additional rent hereunder * -------------- of the excess of each such payment of rent or other consideration received by Tenant** promptly after its receipt, Landlord's waiver or consent to any assignment or subletting shall not relieve Tenant or any assignee or sublessee from any obligation under this Lease whether or not accrued. Occupancy of all or part of the Premises by parent or subsidiary companies of Tenant not be deemed an assignment or subletting. - ------------------------------------------------------------------------------- *one-half (112) 27. SUBORDINATION. *** a. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the building or any ground lessor with respect to the building, this Lease shall be subject and subordinate at all times to: (1) all ground leases or underlying leases which may now exist or hereafter be executed affecting the building or the land upon which the building is situated or both; and (2) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. *** b. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates ** after Tenant's recovery of reasonable, actual, out-of-pocket expenses in connection with such assignment or sublease (including, without limitation, a subtenant improvement allowance) and other monetary concessions *** Subject to Addendum 1, Item 2, 10 12 for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority of subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Should Tenant fail to sign and return any such documents within ten (10) business days of request Tenant shall be in default, and Landlord may, at Landlord's option, terminate the Lease provided written notice of such termination is received by Tenant prior to Landlord's receipt of such documents. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant. 28. ESTOPPEL CERTIFICATE. a. Within ten (10) days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a statement, in a form substantially similar to the form of Exhibit "E", certifying: (1) the date of commencement of this Lease; (2) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, and stating the date and nature of such modifications); (3) the date to which the rental and other sums payable under this Lease have been paid; (4) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (5) such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. b. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (1) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (2) that there are no uncured defaults in Landlord's performance, and (3) that not more than one (1) month's rental has been paid in advance. Tenant's failure to deliver said statement to Landlord within ten (10) working days of receipt shall constitute a default under this Lease and Landlord may, at Landlord's option, terminate the Lease, provided written notice of such termination is received by Tenant prior to Landlord's receipt of said statement. - ------------------------------------------------------------------------------ 30. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the "Rules and Regulations", a copy of which is attached hereto and marked Exhibit "F", and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the building or Project of any of said Rules and Regulations. 31. CONFLICT OF LAWS. This Lease shall be governed by and construed pursuant to the laws of the state in which the premises are located. 32. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 33. SURRENDER OF PREMISES. 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, operate as an assignment to it of any or all subleases or subtenancies. Upon the expiration or termination of this Lease, Tenant shall peaceably surrender the Premises and all alterations and additions thereto, broom clean the Premises, leave the Premises in good order, repair and condition, reasonable wear and tear excepted, and comply with the provisions of Paragraph 15. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not be sufficient to constitute a termination of this Lease or a surrender of the Premises. 34. PROFESSIONAL FEES. a. If Landlord should bring suit for possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease, or for any other relief against Tenant hereunder, or in the event of any other litigation or appeal between the parties with respect to this lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. If Landlord employs a collection agency to recover delinquent charges, Tenant agrees to pay all collection agency fees charged to Landlord in addition to rent, late charges, interest and other sums payable under this Lease. Tenant shall pay a charge of $75 to Landlord for preparation of a demand for delinquent rent. b. If Landlord is named as a defendant in any suit or appeal brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees. 35. PERFORMANCE BY TENANT. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, for which it is liable hereunder, or if Tenant shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, making any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permissible by law, from the date of such payment by Landlord, shall be payable to Landlord on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the non-payment thereof by Tenant as are set forth in Paragraph 25. 11 13 36. 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 mortgage covering 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 a judicial foreclosure, if such should prove necessary to effect a cure. 37. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. Without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. 38. WAIVER. The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of Landlord to insist upon the performance by Tenant in strict accordance with said terms. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rental and additional rent or other sum then due shall be deemed to be other than on account of the earliest installment of such rent or other amount due, nor shall any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy in this Lease provided. 39. IDENTIFICATION OF TENANT. If more than one person executes this lease as Tenant, (1) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (2) the term "Tenant" as used in this Lease shall mean and include each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. 40. PARKING. a. Tenant shall have the right to use the type and number of spaces indicated in Section 1. All such spaces shall be provided to the tenant at no cost. b. The use by Tenant, its employees and invitees, of the parking facilities of the Project shall be on the terms and conditions set forth in Exhibit G attached hereto and by this reference incorporated herein, and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in Exhibit G, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. 41. FORCE MAJEURE. Except as applied to Paragraph 23, Landlord shall have no liability whatsoever to Tenant on account of (1) the inability of Landlord to fulfill, or delay in fulfilling, any of Landlord's obligations under this Lease by reason of strike, other labor trouble, governmental preemption of priorities or other controls in connection with a national or other public emergency, or shortages of fuel, supplies or labor resulting therefrom or any other cause, whether similar or dissimilar to the above, beyond Landlord's reasonable control; or (2) any failure or defect in the supply, quantity or character of electricity or water furnished to the Premises, by reason of any requirement, act or omission of the public utility or others furnishing the Project with electricity or water, or for any other reason, whether similar or dissimilar to the above, beyond Landlord's reasonable control. If this Lease specifies a time period for performance of an obligation of Landlord, that time period shall be extended by the period of any delay in Landlord's performance caused by any of the events of force majeure described above. 42. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 43. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. 44. TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. 12 14 45. PRIOR AGREEMENT OR AMENDMENTS. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in the Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors-in-interest. 46. SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. 47. RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the consent of the other. 48. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (1) The sole and exclusive remedy shall be against the Landlord's interest in the Project; (2) No partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (3) No service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (4) No partner of Landlord shall be required to answer or otherwise plead to any service of process; (5) No judgment will be taken against any partner of Landlord; (6) Any judgment taken against any partner of Landlord may be vacated and set aside at any time nunc pro tunc; (7) No writ of execution will ever be levied against the assets of any partner of Landlord; (8) The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; (9) These covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. 49. MODIFICATION FOR LENDER. If, in connection with obtaining construction, interim or permanent financing for the Project the lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 50. FINANCIAL STATEMENTS. At any time during the term of this Lease, Tenant shall upon ten (10) days prior written notice from Landlord, provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 51. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying the rent required under this lease and paying all other charges and performing all of the covenants and provisions aforesaid on Tenant's part to be observed and performed under this Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 52. TENANT AS CORPORATION. If Tenant executes this Lease as a corporation, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to landlord on execution hereof, and in accordance with the bylaws of Tenant and that this Lease is binding upon Tenant in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: WEYERHAEUSER MORTGAGE COMPANY, ADDRESS: Weyerhaeuser Mortgage a California corporation and Company FORT WYMAN, INC., a Michigan corporation, 6320 Canoga Avenue tenants in common Woodland Hills, CA 91367 By: WEYERHAEUSER MORTGAGE COMPANY, ADDRESS: 12636 High Bluff Drive, managing tenant in common Suite 400 San Diego, CA 92130 By: /s/ Dorothy Forbes ------------------------------ Dorothy Forbes, Vice President TENANT: STAC ELECTRONICS, a California corporation By: [UNSCANNABLE] 15 WORK LETTER AGREEMENT This Work Letter Agreement, is entered into as of the 28th day of January, 1994, by and between Weyerhaeuser Mortgage Company, * ("Landlord") and STAC Electronics, a California corporation ("Tenant"). * a California corporation, and Fort Wyman, Inc., a Michigan corporation, tenants in common RECITALS: A. Concurrently with the execution of this Work Letter Agreement, Landlord and Tenant have entered into a lease (the "Lease") covering certain premises (the "Premises") more particularly described in Exhibit "A" attached to the Lease. B. In order to induce Tenant to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this Work Letter Agreement may apply thereto) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant hereby agree as follows: - ------------------------------------------------------------------------------ 2. TENANT IMPROVEMENTS Reference herein to "Tenant Improvements" shall include all work to be done in the Premises pursuant to the Tenant Improvement Plans described in Paragraph 3 below, including, but not limited to, partitioning, doors, ceilings, floor coverings, wall finishes (including paint and wallcovering), electrical (including lighting, switching, telephones, outlets, etc.), plumbing, heating, ventilating and air conditioning, fire protection, cabinets and other millwork. Whenever Landlord's consent is required in this Work Letter Agreement it shall not be unreasonably withheld or delayed. 3. TENANT IMPROVEMENT PLANS. Immediately after the execution of the Lease, Tenant agrees to meet with its architect and/or space planner for the purpose of preparing a space plan for the layout of the Premises. Based upon such space plan, Tenant's architect shall prepare final working drawings and specifications for the Tenant Improvements. Such final working drawings and specifications may be referred to herein as the "Tenant Improvement Plans." The Tenant Improvement Plans must be consistent with Landlord's standard specifications (the "Standards") for tenant improvements for the Building, as the same may be changed from time to time by Landlord. 4. NON-STANDARD TENANT IMPROVEMENTS. Landlord shall permit Tenant to deviate from the Standards for the Tenant Improvements; provided that (a) the deviations shall not be of a lesser quality than the Standards; (b) the total lighting for the Premises shall not exceed 1.65 watts per rentable square foot; (c) the deviations conform to applicable governmental regulations and necessary governmental permits and approvals have been secured; (d) the deviations do not require building service beyond the level normally provided to other tenants in the Building and do not overload the floors; and (e) Landlord has determined in its sole discretion that the deviations are of a nature and quality that are consistent with the overall objectives of the Landlord for the Building. 5. FINAL PRICING AND DRAWING SCHEDULE. After the preparation of the space plan and after Landlord's written approval thereof, Tenant shall cause its architect to prepare and submit to Landlord the final working drawings and specifications referred to in Paragraph 3 hereof. Such working drawings shall be approved by Landlord and Tenant and - ------------- shall thereafter be submitted to the appropriate governmental body by Tenant's architect for plan checking and the issuance of a building permit. Tenant ------------ shall cause to be made any changes in the plans and specifications necessary to obtain the building permit. Concurrent with the plan checking, Tenant shall have prepared a final pricing for Tenant's approval, - ----------- taking into account any modifications which may be required to reflect changes in the plans and specifications required by the City or County in which the Premises are located. After final approval of the working drawings, no further changes to the Tenant Improvement Plans may be made without the prior written approval from both Landlord and Tenant, such approval by Landlord not to be unreasonably withheld, and then only after agreement by Tenant to pay any excess costs resulting from the design and/or construction of such changes. Tenant hereby acknowledges that any such changes shall be subject to the terms of Paragraph 8 hereof. 6. CONSTRUCTION OF TENANT IMPROVEMENTS. After the Tenant Improvement Plans have been prepared and approved, the final pricing has been approved and a building permit for the Tenant Improvements has been issued, Tenant shall enter into a construction contract with its contractor for the installation of the Tenant Improvements in accordance with the Tenant Improvement Plans. Landlord shall supervise the completion of such work at no cost to Tenant. The cost of such work shall be paid as provided in Paragraph 7 hereof. Landlord shall not be liable for any direct or indirect damages as a result of delays in construction beyond Landlord's reasonable control, including, but not limited to, acts of God, inability to secure governmental approvals or permits, governmental restrictions, strikes, availability of materials or labor or delays by Tenant (or its architect or anyone performing services on behalf of Tenant). 7. PAYMENT OF COST OF THE TENANT IMPROVEMENTS. a. Landlord hereby grants to Tenant a "Tenant Allowance" of Zero and No/100------ Dollars ($-0-) per square foot of Usable Area (as defined below) of the Premises for a total of Zero and No/100------ Dollars ($-0-). Such Tenant Allowance shall be used only for: (1) Payment of the cost of preparing the space plan and the final working drawings and specifications, including mechanical, electrical, plumbing and structural drawings and of all other aspects of the Tenant Improvement Plans. The Tenant Allowance will not be used for the payment of extraordinary design work not included within the scope of Landlord's building standard improvements or for payments to any other consultants, designers or architects other than Landlord's architect and/or space planner. 14 16 (2) The payment of plan check, permit and license fees relating to construction of the Tenant Improvements. (3) Construction of the Tenant Improvements, including, without limitation, the following: (a) Installation within the Premises of all partitioning, doors, floor coverings, ceilings, wall coverings and painting, millwork and similar items. (b) All electrical wiring, lighting fixtures, outlets and switches, and other electrical work to be installed within the Premises. (c) The furnishing and installation of all duct work, terminal boxes, diffusers and accessories required for the completion of the heating, ventilation and air conditioning systems within the Premises, including the cost of meter and key control for after-hour air conditioning. (d) Any additional Tenant requirements including, but not limited to, odor control, special heating, ventilation and air conditioning, noise or vibration control or other special systems. (e) All fire and life safety control systems such as fire walls, sprinklers, halon, fire alarms, including piping, wiring and accessories installed within the Premises. (f) All plumbing, fixtures, pipes and accessories to be installed within the Premises. (g) Testing and inspection costs. (h) Contractor's fees, including but not limited to any fees based on general conditions. (4) All other costs to be expended by Landlord in the construction of the Tenant Improvements, including those costs incurred by Landlord for construction of elements of the Tenant Improvements in the Premises, which construction was performed by Landlord prior to the execution of this Lease by Landlord and Tenant (i.e., during or after the construction of the base Building) and which construction is for the benefit of tenants and is customarily performed by Landlord prior to the execution of leases for such space in the Building for reasons of economics (examples of such construction would include the extension of mechanical [including heating, ventilating and air conditioning systems] and electrical distribution systems outside of the core of the Building, wall construction, column enclosures and painting outside of the core of the Building, ceiling hanger wires and window treatment). b. The cost of each item shall be charged against the Tenant Allowance. In the event that the cost of installing the Tenant Improvements, as established by Landlord's final pricing schedule, shall exceed the Tenant Allowance, or if any of the Tenant Improvements are not to be paid out of the Tenant Allowance as provided in Paragraph 7a above, the excess shall be paid by Tenant to Landlord prior to the commencement of construction of the Tenant Improvements. c. In the event that, after the Tenant Improvement Plans have been prepared and a price therefore established by Landlord, Tenant shall require any changes or substitutions to the Tenant Improvement Plans, any additional costs thereof shall be paid by Tenant to Landlord prior to the commencement of such work. Landlord shall have the right to decline Tenant's request for a change to the Tenant Improvement Plans if such changes are inconsistent with Paragraphs 3 and 4 above, or if the change would, in Landlord's opinion, unreasonably delay construction of the Tenant Improvements. d. In the event that the cost of the Tenant Improvements increases as set forth in Landlord's final pricing due to the requirements of any governmental agency, Tenant shall pay Landlord the amount of such increase within five (5) days of Landlord's written notice; provided, however, that Landlord shall first apply toward such increase any remaining balance in the Tenant Allowance. e. Any unused portion of the Tenant Allowance upon completion of the Tenant Improvements shall not be refunded to Tenant or available to Tenant as a credit against any obligations of Tenant under the Lease. f. As used in this Work Letter Agreement, the term "Usable Area" means the area of the Premises, as determined by measuring the area within the bounds of the inside surface of the glass in the outer wall of the Building and the surface facing the Premises of all partitions separating the Premises from the Building core, adjoining tenant space and public corridors or other common areas. No deductions shall be made for space occupied by structural or functional columns or other projections. The Usable Area of the Premises is 11,911 usable square feet. 8. COMPLETION AND RENTAL COMMENCEMENT DATE. The commencement of the term of the Lease and Tenant's obligation for the payment of rental under the Lease shall commence at the time provided in Section 1.g. of the Lease. IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date first above written. LANDLORD: WEYERHAEUSER MORTGAGE COMPANY, a California corporation and FORT WYMAN, INC., a Michigan corporation, tenants in common By: WEYERHAEUSER MORTGAGE COMPANY, managing tenant in common By: /s/ Dorothy Forbes ---------------------------------- Dorothy Forbes, Vice President TENANT: STAC ELECTRONICS, a California corporation By: /s/ John Witzel ---------------------------------- John Witzel, CFO 17 ADDENDUM "1" 1. Rent Abatement. Notwithstanding the provisions of Section 5 of this Lease, no Base Monthly Rent shall be due or payable for the second (2nd) through seventh (7th) full calendar months, inclusive, following the Commencement Date. 2. Non-Disturbance. Notwithstanding the provisions of Section 27, in the event of a foreclosure of any mortgage or deed of trust or termination of any ground lease, so long as Tenant attorns to the successor fee owner or ground tenant, Tenant's quiet possession of the Premises will not be disturbed and its rights and obligations under this Lease will not be altered. 3. Early Termination. Tenant shall have the right to terminate the Lease, effective on March 31, 1998, by providing Landlord at least six (6) months' prior written notice. 4. Building Signage. Tenant, at Tenant's expense, shall have the right to place its name and/or logo on one (1) side of the exterior of the Building in a location to be selected by Tenant, subject to approval by Landlord (not to be unreasonably withheld or delayed provided such signage complies with the signage criteria contained in the CC&R's affecting the Project) and all governmental agencies. This sign is in addition to the signage provided in the lease for 12636 High Bluff Drive, Suite 400. 5. Hazardous Materials. The following provisions are added to Exhibit H (Hazardous Materials): (i) Landlord's consent under clause (b) of Exhibit H shall not be required for (1) Hazardous Materials, in reasonable quantities, customarily used in business offices, and (2) Hazardous Materials used in reasonable quantities in connection with the construction of repair of Improvements in the Premises, provided such Hazardous Materials are used and handled in accordance with all applicable laws. In addition, Landlord will not unreasonably withhold or delay its consent required under said clause (b) of Exhibit H for any other Hazardous Materials reasonably needed by Tenant in the ordinary course of Tenant's business, provided such Hazardous Materials are used and handled in accordance with all applicable laws. (ii) Landlord warrants to its actual knowledge Tenant that neither the Premises nor any other part of the Building in which the Premises are located contain any asbestos. Landlord also agrees that Tenant shall have no responsibility for any Hazardous Materials on or under the Premises, the Building, or the Project existing at the time of commencement of the Lease, or any such Hazardous Materials thereafter released on or under the Project by anyone other than Tenant, its employees or agents. 18 6. Building Codes: ADA. Any work that is required by applicable law now or hereafter in effect to be done within the Premises (excluding structural components (except to the extent caused by Tenant) and restrooms, elevators, and other common areas) shall be the sole responsibility of Tenant. Except as provided in the preceding sentence, and notwithstanding any other provision of this Lease, Tenant shall have no responsibility to make or pay for improvements or other alterations to the Building to correct deficiencies under existing building codes or other applicable laws, restrictions or requirements, or to comply with future changes in building codes or other applicable laws, restrictions or requirements. Without limiting the foregoing, in the event that any improvements or alterations to the Building are required during the term of the Lease to comply with requirements of the Americans With Disabilities Act or applicable building codes relating to access to or within the Building (except for the Premises) by disabled persons, Landlord will be solely responsible for any such improvements or alterations. 7. Security. With Landlord's prior written approval, not to be unreasonably withheld or delayed, Tenant at its cost and expense and not as part of the costs described in Addendum "5" may install additional reasonable security devices for the Premises. 8. Damage or Destruction. The following is inserted into the Lease as Paragraph 23: 23. DAMAGE OR DESTRUCTION If the Premises or any Common Areas providing access thereto shall be damaged by fire or other casualty, Landlord shall restore the same subject to the terms and conditions set forth in this Paragraph 23 . Such restoration shall be to substantially the condition prior to the casualty, except for modifications required by zoning and building codes and other laws or by any mortgagee, any other modifications to the Common Areas deemed desirable by Landlord (provided access to the Premises is not materially impaired), and except that Landlord shall not be required to repair or replace any of Tenant's furniture, furnishings, fixtures or equipment, or any alterations or improvements in excess of Tenant's improvements installed at a cost of up to $30 per usable square foot. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof. However, as Tenant's sole compensation for such damage or destruction Landlord shall allow Tenant a proportionate abatement of rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease and not occupied by Tenant as a result thereof (unless Tenant or its employees or agents caused the damage). Notwithstanding the foregoing to the contrary, Landlord may elect to terminate this Lease by notifying Tenant in writing of such termination within 19 sixty (60) days after the date of damage (such termination notice to include a termination date providing at least ninety (90) days for Tenant to vacate the Premises) , if the Property shall be damaged by fire or other casualty or cause such that: (a) repairs to the Premises and Building and access thereto cannot reasonably be substantially completed within three hundred (300) days after the date of casualty without the payment of overtime or other premiums; (b) more than twenty-five percent (25%) of the Premises is substantially destroyed by the damage and fewer than twenty-four (24) months remain in the Term, subject to Tenant's right to avoid or limit such termination as set forth below; (c) the cost of the repairs, alterations, restoration or improvement work would exceed twenty-five percent (25%) of the replacement value of the Building and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; (d) the aggregate proceeds available from insurance fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; or (e) as a result of the lawful application of insurance proceeds by any mortgagee to retire the mortgage debt, the insurance proceeds available for restoration fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty. If Landlord elects to terminate this Lease under the circumstances described in Clause (b) of the preceding sentence, provided that the damage to the Property was not caused by the willful misconduct or reckless disregard for life or property of Tenant, Tenant may, by written notice to Landlord, given within thirty (30) days after receipt of Landlord's termination notice, avoid such termination by exercising a then available option to extend the term of this Lease upon the terms and conditions set forth in Addendum "3". Further, notwithstanding the foregoing, Tenant may terminate this Lease if Tenant is unable to use all or any portion of the Premises as a result of fire or other casualty not caused by the willful misconduct or reckless disregard for life or property of Tenant, and: (a) Landlord fails to commence restoration work to the Building and access thereto within sixty (60) days after the damage occurs (Landlord's negotiation with insurance companies and consultation with architects, engineers and contractors shall be deemed to be restoration work); or (b) Landlord fails to substantially complete such work within three hundred sixty five (365) days after the date of the casualty, or such additional time as may be necessary due to strikes, lockouts or other labor troubles, shortages of equipment or materials, governmental requirements, power shortages or outages or other causes beyond Landlord's reasonable control; or (c) such work is reasonably estimated (which estimate Landlord shall provide within sixty (60) 20 days following the casualty), to take more than three hundred sixty five (365) days to substantially complete after the date of the casualty. In addition, Tenant may terminate this Lease if Tenant is unable to use more than twenty-five percent (25%) of the Premises as a result of fire or other casualty not caused by the willful misconduct or gross negligence of Tenant or its employees or agents, and fewer than twenty-four (24) months remain in the Term. In order to exercise any of the foregoing termination rights, Tenant must send Landlord at least sixty (60) but not more than one hundred twenty (120) days advance notice specifying the basis for termination, and such notice must be given no later than thirty (30) days following the occurrence of the condition serving as the basis for the termination right invoked by Tenant. Such termination right shall not be available to Tenant if Landlord substantially completes the repairs to the Premises and access thereto within sixty (60) days after Tenant's notice. Notwithstanding anything to the contrary contained herein, if Tenant, or its officers, employees, contractors, invitees, partners, or agents delay Landlord in performing the repairs, Landlord shall have additional time to complete the work equal to such delay, and Tenant shall pay Landlord all Rent for the period of such delay. If this Lease is terminated pursuant to this Paragraph 23, Tenant shall have the right, to be exercised within 10 days of such termination, to terminate any other lease it has for space within the Project. Tenant agrees that Landlord's obligation to restore, and the abatement of rent and the termination right provided herein, shall be Tenant's sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to terminate the Lease by reason of damage to the Premises, Project or Building, including all rights under California Civil Code, Sections 1932 (2) , 1933 (4) , and 1942, as the same may be modified or replaced hereafter. Tenant acknowledges that this Paragraph 23 represents the entire agreement between the parties respecting damage to the Premises, Project or Building. 21 ADDENDUM "2" OPERATING EXPENSES. For the purposes of this Section, the following terms are defined as follows: Base Year-The calendar year in which this Lease Term commences. For the purposes of this Lease, the Base Year is defined as 1994. Comparison Year-Each calendar year of the term after the Base Year. Tenant's *------ Share of Operating Expenses shall be payable by Tenant to Landlord as follows: (a) Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal to Tenant's *------ Share of the Operating Expenses incurred by Landlord in the Comparison Year which exceeds the total amount of Operating Expenses payable by Landlord for the Base Year. This excess is referred to as the "Excess Expenses." (b) To provide for current payments of Excess Expenses, Tenant shall, at Landlord's, request, pay as additional rent during each Comparison Year, an amount equal to Tenant's *------ Share of the Excess Expenses payable during such Comparison Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's *------ Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. (c) On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's *------ Share of the Excess Expenses for the preceding Comparison Year. If Tenant's* Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within thirty (30) days of the receipt of the statement. If such total exceeds Tenant's *------ Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section shall survive the Expiration Date. (d) Tenant's *------ Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Operating Expenses by more than five percent (5%). (f) Operating Expenses including any additional real estate taxes will be based on a ninety-five percent (95%) leased project for the entire base year and other year regardless of the current occupancy. (g) In no event shall Tenant be responsible for increases in Operating Expenses in excess of six percent (6%) per year on a cumulative basis. * Percentage 22 ADDENDUM "3" OPTION TO RENEW. Tenant shall have the right to extend the term of this Lease for one (1) consecutive five (5) year period (the "Option Term"), on the following terms and conditions: (a) Each Option Term shall commence when the prior term expires. Tenant must give written notice of its exercise of the option, and Landlord must actually receive such notice, no earlier than twelve (12) months and no later than six (6) months prior to the time that the Option Term would commence. (b) The option(s) to extend this Lease for any Option Term must be exercised consecutively. (c) All terms and conditions of this Lease shall apply during the Option Terms except as expressly provided in this Addendum. (d) Tenant shall have no right to exercise an option, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any default * and continuing until the default is cured. ------- (e) The period of time within which Tenant may exercise an option to extend the term of this Lease shall not be extended or enlarged by reason of Tenant's inability to exercise an option because of the provisions of Section (d) above. - -------------------------------------------------------------------------------- (g) The options granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant, without the prior written consent of Landlord. (h) The Base Monthly Rent during each option term shall be adjusted as of the commencement of each option term to ninety-five percent (95%) of the fair rental value of the Premises on the terms and conditions contained in this Lease as mutually agreed by Landlord and Tenant or, if they cannot agree on or before such commencement date, then as determined by an appraiser mutually selected by Landlord and Tenant. If Landlord and Tenant cannot agree on a single appraiser within five (5) days, then each shall select an appraiser. If the two appraisers cannot agree on said fair rental value within thirty (30) days, then the two appraisers shall appoint a third appraiser, and said fair rental value of the Premises shall be deemed to be the average of the two closest appraisals. Each appraiser shall be a disinterested member of the American Institute of Real Estate Appraisers, or a body of comparable standing, with at least five years' experience in commercial real estate appraisal. Landlord and Tenant shall each bear the cost of the appraiser appointed by them, and shall share equally the cost of the appraiser mutually selected by them or of the third appraiser appointed, if any. (i) Landlord will provide Tenant with a Ten Dollars ($10.00) per usable square foot refurbishment allowance. * in the payment of Base Monthly Rent or operating Expenses 23 ADDENDUM "4" RIGHT OF REFUSALS. (a) At any time that Landlord determines to lease any space at 12626 High Bluff Drive or 12636 High Bluff Drive, subject to any other existing tenants' rights of refusal or extension options, Landlord shall notify Tenant in writing. Within five (5) business days after receipt of Landlord's notice, Tenant shall have the option, to be exercised by delivery of written notice to Landlord, to lease the respective space. In the event Landlord notifies Tenant for multiple contiguous suites, then Tenant shall either lease none of the suites or all of the suites being offered. In the event Tenant timely exercises such option, the suites shall be added to the Premises, effective as of the date specified in Landlord's notice. In the event Tenant does not timely exercise such option, Tenant's rights shall terminate and shall not apply to any subsequent leasing of the space unless Landlord does not execute a lease for the space by a third party, in which case Tenant's rights shall be reinstated. (b) In the event Tenant timely exercises such option, such space shall be tendered to Tenant in "as is" condition. (c) In the event Tenant timely exercises such option, such space shall be subject to all of the terms and conditions of this Lease, provided that the Base Monthly Rent shall be One and 25/100 Dollar ($1.25) per square foot per month, plus electricity, and the Tenant's Share shall be proportionately increased to reflect the inclusion of such space in the Premises, and provided further that no free rent, abatement, discount, or other concession shall apply with respect to the space except if Tenant is currently in the free rent period, at which time the remaining free rent will apply. (d) Tenant shall have no right to exercise its right of refusal, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any default*under Section 25 of this Lease and continuing until the default is cured. (e) The period of time within which Tenant may exercise its right of refusal shall not be extended or enlarged by reason of Tenant's inability to exercise such right of refusal because of the provisions in Section (d) above. ------------------------------------------------- (g) The right of refusal granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant without the prior written consent of Landlord. *in the payment of Base Monthly Rent or Operating Expenses 24 ADDENDUM "5" TENANT IMPROVEMENTS/BASE MONTHLY RENTAL REDUCTION. Tenant, at Tenant's expense, will pay for all the costs associated with the following: (a) Space planning. (b) Construction documents. (c) Building permits. (d) Construction of tenant improvements. (e) Moving expenses. (f) Tenant signage costs. (g) All other costs relating to the build-out of the Premises. As a concession for Tenant paying for these above mentioned costs, Landlord will reduce Tenant's Base Monthly Rent in Section 1(h) of the Lease in accordance with an amortization formula as follows: Present Value: Total costs as outlined above, up to a maximum of Three Hundred Fifty-Seven Thousand Three Hundred Thirty and No/100 Dollars ($357,330.00; $30.00 per usable square foot). Amortization Term: Sixty (60) months. (Lease term is 66 months - 6 months' rent abatement = 60 months.) Interest Rate of Amortization: Six percent (6%). As an example, should Tenant expend the maximum amount of $357,330.00, this amount shall be amortized at six percent (60%), which would reduce Tenant's Base Monthly Rent by Six Thousand Nine Hundred Eight and 19/100 Dollars ($6,908.19) per month. BID PROCESS. Tenant will cause at least two and not more than five contractors to bid for the construction of tenant improvements including the following contractors: (a) Roel Construction (b) Consolidated Contracting (c) (d) (e) The contractor selected shall be one of the two lowest bidders, provided that all bids are adjusted for inconsistent assumptions to reflect an "apples-to-apples" comparison. Tenant, at its sole discretion, shall select the contractor in accordance with these terms. Landlord will not impose any charge for profit overhead, or supervision in connection with the construction of tenant improvements. Landlord, at Landlord's expense, shall have the right to supervise the construction of tenant improvements from a landlord's perspective. In no event shall Landlord's election to supervise the tenant improvements relieve Tenant from its obligation to perform the tenant improvements in accordance with this Lease. Reduction in Prepaid Rent and Security Deposit. If the Base Monthly Rent is reduced pursuant to the above provision entitled Tenant Improvements/Base Monthly Rental Reduction, the required Prepaid Rent as set forth in Section 1(k) and the required Total Security Deposit as set forth in Section 1(1) shall be reduced by the same amount and Landlord shall refund to Tenant any excess Prepaid Rent and Total Security Deposit paid to Landlord within 10 days after the reduction is determined. 25 EXHIBIT A OUTLINE OF FLOOR PLAN OR PREMISES CORPORATE PLAZA II 12636 HIGH BLUFF DR SAN DIEGO, CA 92130 SECOND FLOOR Suite 200 13,686 Rentable Square Feet [GRAPHIC] A-1 26 EXHIBIT B THE PROJECT [GRAPHIC] 27 EXHIBIT C NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE To:_____________________________________ Date:_______________________ _____________________________________ _____________________________________ Re: Lease dated__________________________, 19__, between____________________ ____________________, Landlord, and ____________________________________ Tenant, concerning Suite __________ located at _________________________________________ Gentlemen: In accordance with the subject Lease, we wish to advise and/or confirm as follows: 1. That the Premises have been accepted herewith by the Tenant as being substantially complete in accordance with the subject Lease and that there is no deficiency in construction. 2. That the Tenant has possession of the subject Premises and acknowledges that under the provisions of the subject Lease the term of said Lease shall commence as of ________________________________ for a term of __________________ ending on ________________________________ 3. That in accordance with the subject Lease, rental commenced to accrue on __________________________ 4. If the commencement date of the subject Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in said Lease. 5. Rent is due and payable in advance on the first day of each and every month during the term of said Lease. Your rent checks should be made payable to ________________________________ at ________________________________ 6. The exact number of rentable square feet within the Premises is __________ square feet. 7. Tenant's Percentage, as adjusted based upon the exact number of rentable square feet within the Premises, is __________% AGREED AND ACCEPTED LANDLORD: TENANT ___________________________ ____________________________ By:________________________ By:_________________________ By:_________________________ C-1 28 EXHIBIT D STANDARDS FOR UTILITIES AND SERVICES The following Standards for Utilities and Services are in effect. Landlord reserves the right to adapt nondiscriminatory modifications and additions hereto. As long as Tenant is not in default under any of the terms, conditions, provisions or agreements of this Lease, Landlord shall: 1. Provide non-attended automatic elevator facilities Monday through Friday, except holidays from 8 A.M. to 6 P.M., and have one elevator available at all other times. 2. On Monday through Friday, except holidays from 7 A.M. to 6 P.M., and on Saturday mornings from 7 A.M. to 4 P.M. (and other times for an agreed upon rate of $15.00 per hour, ventilate the Premises and furnish air conditioning or heating on such days and hours, when in the reasonable judgment of Landlord it may be required for the comfortable occupancy of the Premises. The air conditioning system achieves maximum cooling when the window coverings are closed. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Premises closed whenever the system is in operation. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the building chilled and hot water air conditioning supply lines. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter mechanical installations or facilities of the building or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations under this section, including keeping window coverings closed as needed. Such work shall be charged at hourly rates equal to then-current journeymen's wages for air conditioning mechanics. 3. Landlord shall furnish to the Premises, during the usual business hours on business days, electric current as required by the building standard office lighting and fractional horsepower office business machines in an amount not to exceed .025 KWH per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, as established by an independent licensed engineer. Tenant agrees not to use any apparatus or device in, or upon, or about the Premises which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, 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 written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights therein granted for such breach. At all times Tenant's use of electric current shall never exceed the capacity of the feeders to the building or the risers or wiring installation and Tenants shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises without the prior written consent of Landlord. 4. Water will be available in public areas for drinking and lavatory purposes only, but if Tenant requires, uses or consumes water for any purposes in addition to ordinary drinking and lavatory purposes, of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such. 5. Provide janitor service to the Premises, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant, and if to be kept clean by Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they shall be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and by persons approved by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electric systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations or improvements, shall have been completed, and shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly understood and agreed that any convenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. 6. This Lease is a "plus electricity" lease in which Tenant shall pay for their use of electricity throughout the term of the Lease. Each floor of the project is separately metered, and Tenant shall pay directly to the utility company each month for their electrical consumption. D-1 29 EXHIBIT E TENANT ESTOPPEL CERTIFICATE The undersigned, ___________________________________ ("Landlord"), with a mailing address c/o __________________________ and___________________________ ___________________ ("Tenant"), hereby certify to__________________________, a ____________________________________________________________, as follows: 1. Attached hereto is a true, correct and complete copy of that certain lease dated____________________, 19__, between Landlord and Tenant (the "Lease"), which demises premises located at________________________. The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Paragraph 4 below. 2. The term of the Lease commenced on______________________________ 19___. 3. The term of the Lease shall expire on___________________________ 19___. 4. The Lease has (Initial one): (___) not been amended, modified, supplemented, extended, renewed or assigned. (___) been amended, modified, supplemented, extended, renewed or assigned by the following described agreements copies of which are attached hereto: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ 5. Tenant has accepted and is now in possession of said premises. 6. Tenant and Landlord acknowledge that the Lease will be assigned to____________________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of____________________is obtained, and that until further notice, payments under the Lease may continue as heretofore. 7. The amount of fixed monthly rent is $______________________. 8. The amount of security deposits (it any) is $________________________. No other security deposits have been made. 9. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent under the Lease has been paid for more than thirty (30) days in advance of its due date. 10. All work required to be performed by Landlord under the Lease has been completed. 11. There are no defaults on the part of the Landlord or Tenant under the Lease. 12. Tenant has no defense as to its obligations under the Lease and claims no set-off or counterclaim against Landlord. 13. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies except as provided in the lease. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that_______________________ is about to fund a loan to Landlord and that___________________________ is relying upon the representations herein made in funding such loan. IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of_________________, 19____. LANDLORD: By:___________________________ TENANT By:___________________________ By:___________________________ E-1 30 EXHIBIT F RULES AND REGULATIONS 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the building or Project without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Project. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof(s) of the Project. 4. The directory of the building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Project and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Project for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 6. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 8. Freight elevator(s) shall be available for use by all tenants in the building, subject to such reasonable scheduling as Landlord, in its discretion, shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items shall, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the building. 9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 11. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. 12. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. 13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the building. 14. Landlord reserves the right to exclude from the building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the building of any person. Landlord reserves the right to prevent access to the building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the building or by Landlord for noncompliance with this rule. F1 31 16. Tenant shall not obtain for use on the Premises ice, drinking water, food, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such hours and under such regulations as may be fixed by Landlord. 17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 18. Tenant shall not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Project. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. 19. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof(s) or exterior walls of the building or Project. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 20. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 21. Tenant shall not install, maintain or operate upon the premises any vending machines without the written consent of Landlord. 22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 23. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgement, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 24. Tenant shall store all its trash and garbage within its premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 25. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectional purpose. No cooking shall be done or permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted, provided that such equipment and use is in accordance with all applicable, federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Tenant shall not use in any space or in the public halls of the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the building or Project. 27. Without the written consent of Landlord, Tenant shall not use the name of the building or Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 28. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 29. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 30. Tenant's requirements will be attended to only upon appropriate application to the Project management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 31. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. 32. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. 33. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 34. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. F-2 32 EXHIBIT G PARKING RULES AND REGULATIONS The following rules and regulations shall govern use of the parking facilities which are appurtenant to the Project. 1. All claimed damage or loss must be reported and itemized in writing delivered to the Management Office within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord has the option to make repairs at its expense of any claimed damage within two business days after filing of any claim. In all court actions the burden of proof to establish a claim remains with Tenant. Court actions by Tenant for any claim must be filed within ninety days from date of parking in court of jursidiction where a claimed loss occurred. Landlord is not responsible for damage by water, fire, or defective brakes, or parts, or for the act or omissions of others, or for articles left in the car. The total liability of Landlord is limited to $250.00 for all damages or loss to any car. Landlord is not responsible for loss of use. 2. Tenant shall not park or permit the parking of any vehicle under its company in any parking areas designated by Landlord as areas for parking by visitors to the Project. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or fourwheeled trucks. 3. Parking stickers or any other device or form of identification supplied by landlord as a condition of use of the Parking Facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. 4. No overnight or extended term storage of vehicles shall be permitted. 5. Vehicles must be parked entirely within painted stall lines of a single parking stall. 6. All directional signs and arrows must be observed. 7. The speed limit within all parking areas shall be 5 miles per hour. 8. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross-hatched areas; and (f) in such other areas as may be designated by Landlord or Landlord's Parking Operator. 9. Every parker is required to park and lock his own vehicle. All responsibility for damage to vehicles is assumed by the parker. 10. Loss or theft of parking identification devices from automobiles must be reported to the Management Office immediately, and a lost or stolen report must be filed by the customer at that time. Landlord has the right to exclude any car from the parking facilities that does not have an identification device. 11. Any parking identification devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution. 12. Lost or stolen devices found by the purchaser must be reported to the Management Office immediately to avoid confusion. 13. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 14. Parking Facility managers or attendants are not authorized to make or allow any exceptions to these Rules and Regulations. 15. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to any tenant or person and/or his agents or representatives who willfully refuse to comply with these Rules and Regulations and all unposted City, State or Federal ordinances, laws or agreements. 16. Landlord reserves the right to establish and change parking fees and to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the car to removal. G-1 33 EXHIBIT H HAZARDOUS MATERIALS THE FOLLOWING PROVISIONS DEALING WITH HAZARDOUS MATERIALS ARE MEANT TO BE IN ADDITION TO, AND NOT SUPERSEDE OR LIMIT, ANY OTHER PROVISIONS OF THIS LEASE WHICH MAY DEAL WITH THE SAME SUBJECT MATTER. (a) DEFINITION. "Hazardous Materials" shall mean any hazardous or toxic substance, material, or waste which is or becomes regulated by any local governmental authority, the State of California, or the United States Government, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous wastes" in the Comprehensive Environmental Responses, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq; the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901, et seq; the California Health & Safety Code; and any law, ordinance, or regulation dealing with underground storage tanks; and in the regulations adopted, published, and/or promulgated pursuant to said laws, and in any other environmental law, regulation, or ordinance now existing or hereinafter enacted (hereinafter "Hazardous Materials Laws"). (b) USE AND REMOVAL. (1) Tenant hereby agrees that Tenant shall not use, generate, manufacture, refine, process, store, or dispose of on, under, or about the Premises or transport to or from the Premises any Hazardous Materials, except with the written consent of Landlord in Landlord's sole discretion and in full compliance with applicable Hazardous Materials Laws. Tenant further acknowledges that Tenant does not intend to use the Premises in the future for the purpose of generating, manufacturing, refining, producing, storing. handling, transferring, processing, or transporting of Hazardous Materials. (2) If at any time during the term of this Lease, Hazardous Materials are used, or placed by Tenant on the Premises or Hazardous Materials are discovered by Tenant on the Premises where no prior consent of Landlord was obtained or otherwise in violation of any Hazardous Materials Laws, or if any contamination of the Premises shall occur, Tenant, at Tenant's sole cost and expense, shall immediately remove such Hazardous Materials from the Premises or from the ground or ground-water underlying the Premises in accordance with requirements of the appropriate governmental entity. Furthermore, Tenant 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 Tenant's use of the Premises, including, without limitation, discharge of (appropriately treated) materials or wastes into and through any sanitary sewer serving the Premises. (3) Except for discharges into the sanitary sewer in strict accordance and conformity with all applicable Hazardous Materials Laws, Tenant shall cause any and all permitted Hazardous Materials removed from the Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Tenant shall in all respects handle, treat, deal with, and manage any and all Hazardous Materials in, on, under, or about the Premises in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in or about the Premises nor enter into any settlement agreement, consent, decree, or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Premises without first notifying Landlord of Tenants intention to do so and affording Landlord ample opportunity to appear, intervene, or otherwise appropriately assert and protect Landlord's interest with respect thereto. In addition to all other rights and remedies of Landlord hereunder, if such Hazardous Materials are not removed from the Premises or the ground or groundwater underlying the Premises by Tenant within fifteen (15) days after Landlord or Tenant discovers such Hazardous Materials, Landlord, at its sole discretion, may, but shall not be obligated to, pay to have the same removed, and Tenant shall reimburse Landlord within five (5) days of Landlord's demand for payment. (c) NOTICE. (1) 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 Hazardous Materials Laws; (ii) any claim made or threatened by any person against Tenant, or the Premises 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 or removed from the Premises, including any complaints, notices, warnings, or asserted violations in connection therewith, upon Tenant's receipt of actual knowledge of the above. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first H-1 34 receives or sends the same, with copies of all claims, reports, complaints, notices, Warnings, or asserted violations relating in any way to the Premises, or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. (2) Tenant acknowledges that Tenant has been informed that Section 25359.7 of the California Health and Safety Code provides that any tenant of real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath the real property shall, upon discovery by the tenant of the presence or suspected presence of a hazardous substance release, give notice of that condition to the owner of the real property. Failure of the tenant to provide written notice as required to the owner shall make the lease voidable at the discretion of the owner. The Health and Safety Code provides that if the tenant has actual knowledge of the presence of any hazardous substance release and knowingly or willingly fails to provide written notice as required by the owner, the tenant is liable for a civil penalty not to exceed $5,000.00 for each violation. (d) INDEMNIFICATION. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord, and each and any of Landlord's shareholders, partners, officers, directors, employees, agents, attorneys, successors, and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses, or expenses (including actual attorneys' fees and costs) or death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly or indirectly, by (i) the presence in, on, under, or about the Premises or discharge in or from the Premises of any Hazardous Materials placed or discharged in, on, or under the Premises by Tenant or 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; or (ii) Tenant's failure to comply with any Hazardous Materials Laws. Tenant's obligation 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 and the preparation and implementation of any closure, remedial action, or other required plans in connection therewith. For purpose of the indemnity provisions hereof, any acts or omissions of Tenant, or by employees, agents, assignees, subtenant, concessionaire, contractors, or subcontractors of Tenant or others acting for on behalf of Tenant (whether or not they are negligent, intentional, willful, or unlawful) shall be strictly attributable to Tenant. (e) SURVIVAL. All representations, warranties, obligations, and indemnities with respect to Hazardous Materials shall survive the termination of this Lease. Section 10.2. WASTE MANAGEMENT REQUIREMENTS. Without limiting any other obligations of Tenant under this Lease, Tenant covenants and agrees to comply with all laws, rules, regulations, and guidelines now or hereafter made applicable to the Premises respecting the disposal of waste, trash, garbage, and other matter (liquid or solid), generated by Tenant, the disposal of which is not otherwise the express obligation of Landlord under this Lease, including, but not limited to, laws, rules, regulations, and guidelines respecting recycling and other forms of reclamation (all of which are herein collectively referred to as "Waste Management Requirements"). Tenant hereby covenants and agrees to comply with all rules and regulations established by Landlord to enable Landlord from time to time to comply with Waste Management Requirements applicable to Landlord (i) as owner of the Premises, and (ii) in performing Landlord's obligations under this Lease, if any. Tenant covenants and agrees to indemnify, defend, protect, and hold Landlord harmless from and against all liability (including costs, expenses, and attorneys' fees) that Landlord may sustain by reason of Tenant's breach of its obligations under this Section 10.2. Tenant obligations under this Section 10.2 shall survive the termination of this Lease. H-2 EX-10.16 7 EXHIBIT 10.16 1 EXHIBIT 10.16 OFFICE BUILDING LEASE TABLE OF CONTENTS SECTION .............................................. Page 1. Basic Lease Terms ............................. 1 2. Premises and Common Areas Leased .............. 2 3. Term .......................................... 2 4. Possession .................................... 2 5. Rent .......................................... 3 6. Rental Adjustment ............................. 3 7. Security Deposit .............................. 4 8. Use ........................................... 4 9. Notices ....................................... 5 10. Brokers ....................................... 5 11. Holding Over .................................. 5 12. Taxes on Tenant's Property .................... 5 13. Condition of Premises ......................... 5 14. Alterations ................................... 5 15. Repairs ....................................... 6 16. Liens ......................................... 6 17. Entry By Landlord ............................. 6 18. Utilities and Services ........................ 6 19. Bankruptcy .................................... 7 20. Indemnification and Exculpation of Landlord.... 7 21. Damage to Tenants Property .................... 7 22. Tenants Insurance ............................. 7 23. Damage or Destruction ......................... 8 24. Eminent Domain ................................ 9 25. Defaults and Remedies ......................... 9 26. Assignment and Subletting ..................... 10 27. Subordination ................................. 10 28. Estoppel Certificate .......................... 11 29. Building Planning ............................. 11 30. Rules and Regulations ......................... 11 31. Conflict of Laws............................... 11 32. Successors and Assigns......................... 11 33. Surrender of Premises.......................... 11 34. Professional Fees.............................. 11 35. Performance by Tenant.......................... 11 36. Mortgagee Protection .......................... 12 37. Definition of Landlord ........................ 12 38. Waiver ........................................ 12 39. Identification of Tenant ...................... 12 40. Parking ....................................... 12 41. Force Majeure ................................. 12 42. Terms and Headings ............................ 12 43. Examination of Lease .......................... 12 44. Time .......................................... 12 45. Prior Agreement or Amendments ................. 13 46. Separability .................................. 13 47. Recording ..................................... 13 48. Limitation on Liability ....................... 13 49. Modification For Lender ....................... 13 50. Financial Statements .......................... 13 51. Quiet Enjoyment ............................... 13 52. Tenant as Corporation ......................... 13 53. WORK Letter Agreement ......................... 14 Exhibits A Outline of Floor Plan or Premises B The Project C Notice of Lease Term Dates and Tenant's Percentage D Standards for Utilities and Services E Tenant Estoppel Certificate F Rules and Regulations G Parking Rules and Regulations H Hazardous Materials 2 OFFICE LEASE 1. BASIC LEASE TERMS a. DATE OF LEASE EXECUTION: July 12, 1994 -------------------------------------------------- b. TENANT: STAC Electronics, a California corporation ------------------------------------------------------------------- Trade Name: --------------------------------------------------------------- Address (leased Premises): 12626 High Bluff Drive ------------------------------------------------ San Diego, CA 92130 --------------------------------------------------------------------------- Floor(s) upon which the Premises are Located: Third (3rd) --------------- Suite Number(s): 370 ------------ Address (For Notices): 12636 High Bluff Drive, Suite 400 ----------------------------------------------------- San Diego, CA 92130 ----------------------------------------------------- c. LANDLORD: Weyerhaeuser Mortgage Company, a California corporation, and ----------------------------------------------------------------- Fort Wyman, Inc., a Michigan Corporation ----------------------------------------------------------------- Address (For Notices) c/o Weyerhaeuser Mortgage Company, 6320 Canoga ----------------------------------------------------- Avenue, Woodland Hills, CA 91367 ----------------------------------------------------- with a copy to Voit Management, 12626 High Bluff Drive, Suite 110, San Diego, CA 92130 or to such other place as Landlord may from time to time designate by notice to Tenant. d. PREMISES AREA: Approximately Four Thousand Seven Hundred Twenty-Nine ------------------------------------------------------------ (4,729) Rentable Square Feet ------------------------------------------------------------ e. PROJECT AREA: Fifty-Seven Thousand Eight Hundred Ninety-Five (57,895) ------------------------------------------------------------ Rentable Square Feet ------------------------------------------------------------ f. TENANT'S PERCENTAGE: 8.2% ------- g. TERM OF LEASE: The term of this Lease shall be for the approximately ------------------- sixty-six (66) months commencing upon the earlier of: --------------- --------------------------------------------------------------------------- (2) The date that Tenant opened for business in the Premises, or (3) September 6, 1994, except as such September 6, 1994, date shall be extended for Landlord caused delays and delays due to the Premises being physically inaccessible through no fault of Tenant, and expiring 3/ Reference in this lease to a "Lease Year" shall mean each successive twelve month period commencing with the first day of the month in which the term of this Lease commences. h. BASE MONTHLY RENT: $ Five Thousand Nine Hundred Eleven and 25/100 Dollars -------------------------------------------------------- ($5,911.25) -------------------------------------------------------- - ------------------------------------------------------------------------------- j. ANNUAL OPERATING EXPENSE ALLOWANCE: See Addendum "2." - ------------------------------------------------------------------------------- k. PREPAID RENT: $ 5,911.25 (See Addendum "5") ----------------------------- l. TOTAL SECURITY DEPOSIT: $ 5,911.25, including a $ -0- non-refundable ---------- --- cleaning fee. (See Addendum "5") m. TENANT IMPROVEMENT ALLOWANCE: $ See Addendum "5" ---------------------- ------------------ n. TENANT'S USE OF PREMISES: General office use. ------------------------------------------------ o. PARKING: Nineteen (19) spaces, including two (2) covered and reserved, --------------- free of charge. p. BROKER(S): CB Commercial Real Estate Group, Inc. and Business Real Estate ---------------------------------------------------------------- Brokerage Company, Inc. ---------------------------------------------------------------- q. BROKERAGE COMMISSION PAYABLE BY: Landlord ------------------------------------------ r. GUARANTOR(S): None ------------------------------------------------------------- s. ADDITIONAL SECTIONS Additional sections of this lease numbered Addenda "1" through "5" ----- ------------------------- t. ADDITIONAL EXHIBITS Additional exhibits letters H ----- are attached hereto and made a part hereof. ------------------------------------------------------------------- 1 3 Section 1 represents a summary of the basic terms of this Lease. In the event of any inconsistency between the terms contained in Section 1 and any specific clause of this Lease, the terms of the more specific clause shall prevail. The parties hereto agree that said letting and hiring is upon and subject to the terms, covenants and conditions herein set forth. Tenant covenants, as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions for which tenant is liable and that this Lease is made upon the condition of such performance. 2. PREMISES AND COMMON AREAS LEASED. a. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain premises described in Section 1 and in Exhibit A attached hereto (the "Premises"). --------------------------------------------- Landlord and Tenant stipulate that for purposes of this Lease, the Premises contains 4,729 rentable square feet and the Project contains 57,895 rentable square feet. b. The Premises are contained within the building at the address designated in Section 1 located in the Project described on Exhibit B attached hereto (the "Project"). c. Tenant's Percentage of the Project is stipulated to be 8.2%. ---------- d. Tenant shall have the nonexclusive right to use in common with other tenants in the Building and the Project and subject to the Rules and Regulations referred to in Paragraph 30 below the following areas ("Common Areas") appurtenant to the Premises: (1) The Building's common entrances, lobbies, restrooms, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises: (2) Loading and unloading areas, trash areas, parking areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities appurtenant to the Building. e. Landlord reserves the right from time to time without unreasonable interference with Tenant's use: (1) To install, use, maintain, repair and replace pipes,ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment included in the Premises which are located in the Premises or located elsewhere outside the Premises, and to expand the Building or Project; (2) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways. (3) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available: (4) To designate other land outside the boundaries of the Building or Project to be a part of the Common Areas; (5) To add additional buildings and improvements to the Common Areas; (6) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or the Project, or any portion thereof; (7) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas, the Building or the Project as Landlord may, in the exercise of sound business judgment, deem to be appropriate. 3. TERM The term of this Lease shall be for the period designated in Section 1, commencing on the Commencement Date, and ending on the expiration of such period, unless the term hereby demised shall be sooner terminated as hereinafter provided. If not specifically designated in Section 1, the Commencement Date, the date upon which the term of this Lease shall end, the rentable square feet within the Premises and Tenant's Percentage shall be determined in accordance with the provisions of Paragraph 2 and will be specified in Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "C" which is attached hereto and is incorporated herein by this reference, and shall be served upon Tenant as provided in Paragraph 9. The Notice shall be binding upon Tenant unless Tenant objects to the Notice in writing, served upon Landlord as provided for in Paragraph 9 hereof, within five (5) days of Tenant's receipt of the Notice. ------------------ ---------------------------------------------------------------------------- 2 4 5. RENT. a. Tenant shall pay Landlord monthly base rent in the initial amount set forth in Section 1 which shall be payable monthly in advance on the first day of each and every calendar month ("Base Monthly Rent") provided, however, the first month's rent shall be due and payable upon execution of this lease. - -------------------------------------------------------------------------------- d. All rent shall be paid by Tenant to Landlord monthly in advance on the first day of every calendar month, at the address shown in Section 1, or such other place as Landlord may designate in writing from time to time. All rent shall be paid without prior demand or notice and without any deduction or offset whatsoever. All rent shall be paid in lawful currency of the United States of America. All rent due for any partial month shall be prorated at the rate of 1/30th of the total monthly rent per day. Tenant acknowledges that late payment by Tenant to Landlord of any rent or other sums due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to ascertain. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by the Premises. Therefore, if any rent or other sum due from Tenant is not received when due. Tenant shall pay to landlord an additional sum equal to 10% of such overdue payment. Landlord and Tenant hereby agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment. Additionally, all such delinquent rent or other sums, plus this late charge, shall bear interest at the then maximum lawful rate permitted to be charged by Landlord. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $25.00, and thereafter, Landlord may require Tenant to pay all future payments of rent or other sums due by money order or cashier's check. e. Upon the execution of the Lease. Tenant shall pay to Landlord the prepaid rent set forth in Section 1 and if Tenant is not in default of any provisions of the Lease, such prepaid rent shall be applied toward the rent due for the first month of the term. Landlord's obligations with respect to the prepaid rent are those of a debtor and not of a trustee, and Landlord can commingle the prepaid rent with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the prepaid rent. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid rent; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease in the event Landlord does not accept this Lease. Landlord shall return said prepaid rent. - -------------------------------------------------------------------------------- g. "For purposes of Section 467 of the Internal Revenue Code, the parties to this lease agreement hereby agree to allocate the stated rents, provided herein, to the periods which correspond to the actual rent payments as provided under the terms and conditions of this agreement." 6. RENTAL ADJUSTMENT. A. For the purposes of this Paragraph 6, the following terms are defined as follows: (1) Tenant's Percentage shall mean that portion of the total rentable area of the Project occupied by Tenant as set forth as a percentage in Section 1. - -------------------------------------------------------------------------------- (3) Operating Expenses shall consist of all direct costs of operation and maintenance of the Project and the Common Areas, including any expansions to the Common Areas by Landlord ("Operating Expenses"), as determined by standard accounting practices, calculated assuming the Project is fully occupied, including the following costs by way of illustration, but not limitation; any and all assessments Landlord must pay for the Project pursuant to any covenants, conditions or restrictions reciprocal easement agreements, tenancy-in-common agreements or similar restrictions and agreements affecting the Building or the Project; real property taxes and assessments and any taxes or assessments hereafter imposed in lieu thereof, rent taxes, gross receipt taxes (whether assessed against Landlord or assessed against Tenant and paid by Landlord, or both); water and sewer charges; accounting; legal and other consulting fees; the net cost and expense of insurance for which Landlord is responsible hereunder or which Landlord or any first mortgagee with a lien affecting the Premises reasonably deems necessary in connection with the operation of the Project; utilities; janitorial services; security; ???? parking charges, utilities surcharges, or any other costs levied, assessed or imposed by, or at the direction of or resulting from statutes or regulations or interpretations thereof, promulgated by any federal, state, regional, municipal or local government authority in connection with the use or occupancy of the Project or the Premises or the parking facilities serving the Project or the Premises; the cost (amortized over such reasonable period as Landlord shall determine together with interest at the maximum rate allowed by law on the unamortized balance) of any capital improvements made to the Project or the Common Areas by the Landlord* or replacement of any building equipment needed to operate the Building or the Common Areas at the same quality levels as prior to the replacement; costs incurred in the management of the Project, if any (including supplies, wages and salaries of employees used in the management, operation and maintenance of the Project, and payroll taxes and similar governmental charges with respect thereto, Project management office rental, a management fee and, in the event Landlord is directly participating in the administration of the Project, an administrative fee in the amount of Landlord's actual expenses, such administrative fee not to exceed fifteen percent (15%) of the annual Operating Expenses excluding therefrom such fee); air conditioning; waste disposal; heating; ventilating; elevator maintenance; supplies; materials; equipment; tools; repair and maintenance of the structural portions of the Project, including the plumbing, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord; maintenance costs, including utilities and payroll expenses, rental of personal property used in maintenance, and all other upkeep of all parking and Common areas; costs and expenses of * in order to comply with any governmental requirements not in existence as of the date of this Lease or designed to reduce Operating Expenses 3 5 gardening and landscaping; maintenance of signs(other than Tenant's signs); personal property taxes levied on or attributable to personal property used in connection with the entire Project, including the Common Areas; reasonable audit or verification fees; and costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal, security and similar items, including appropriate reserves. Operating Expenses shall not include depreciation on buildings or equipment therein, Landlord's executive salaries or real estate brokers' commissions. (4) As used herein, the term "real property taxes" shall include any form of assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, penalty, tax or similar imposition, imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, including, but not limited to, the following: (a) any tax on Landlord's "right" to other income from the Premises or as against Landlord's business of leasing the Premises; (b) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real estate tax, including but not limited to, any assessments, taxes, fees, levies and charges that may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of "real property taxes" for the purposes of this Lease; (c) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax or excise tax levied by the State, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (d) any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. Notwithstanding any provision of this paragraph 6 expressed or implied to the contrary, "real property taxes" shall not include Landlord's federal or state income, franchise, inheritance or estate taxes. - ------------------------------------------------------------- See Addendum "2." c Even though the term has expired and Tenant has vacated the Premises, when final determination is made of Tenant's Percentage of Operating Expenses for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall be rebated by Landlord to Tenant. 7. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit with Landlord the amount of the security deposit set forth in Section 1 in part as security for the performance by Tenant of the provisions of this Lease ------------------. If Tenant is in default, Landlord can use the security deposit or any portion of it to cure the default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant's default. Upon demand, Tenant shall immediately pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord to maintain the security deposit in the amount initially deposited with Landlord. In no event will Tenant have the right to apply any part of the security deposit to any rent or other sums due under this Lease. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the entire security deposit to Tenant. ------------------ - ------------------------ Landlord's obligations with respect to the deposit are those of a debtor and not of a trustee, and Landlord can commingle the security deposit with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the deposit. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid deposit; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid deposit. Should Landlord sell its interest in the Premises during the term hereof and if Landlord deposits with the purchaser thereof the then unappropriated funds deposited by Tenant as aforesaid, thereupon Landlord shall be discharged from any further liability with respect to the Security Deposit. 8. USE. Tenant shall use the Premises for the uses set forth in Section 1 above, and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building. Tenant shall not use or occupy the Premises in violation of law or of the Certificate of Occupancy issued for the Building, and shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of said Certificate of Occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant shall comply with all rules, orders, regulations and requirements of the Insurance Service Office or any other organization performing a similar function. Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Paragraph. Tenant shall not do or permit anything to be done in or about the Premises 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 improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about 4 6 the Premises. Tenant shall comply with all restrictive covenants and obligations created by private contracts which affect the use and operation of the Premises, the Building, the Common Area or the Project. Subject to Paragraph 23 hereof, Tenant shall not commit or suffer to be committed any waste in or upon the Premises and shall keep the Premises in first class repair and appearance normal wear and tear excepted. Landlord reserves the right to prescribe the weight and position of all files, safes and heavy equipment which Tenant desires to place in the Premises so as to properly distribute the weight thereof. Further, Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the building structure or to any other space in the building shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. Tenant shall be responsible for all structural engineering required to determine structural load. 9. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery or by mail and if given by mail shall be deemed sufficiently given if sent by registered or certified mail addressed to Tenant at the address(es) designated in Section 1 or to Landlord at both of the addresses designated in Section 1. Either party may specify a different address for notice purposes by written notice to the other. ------- - ---------------------------------------------------------- 10. BROKERS. Tenants warrants that it has no dealings with any real estate broker or agent in connection with the negotiation of this Lease except for those certain brokers whose names are set forth in Section 1 and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. If Tenant has dealt with any other person or real estate broker with respect to leasing or renting space in the Project. Tenant shall be solely responsible for the payment of any fee due said person or firm and Tenant shall hold Landlord free and harmless against any liability in respect thereto, including attorneys' fees and costs. 11. HOLDING OVER. If Tenant holds over after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant shall become a Tenant at sufferance only, at a rental rate equal to the greater of Landlord's scheduled rent for the space or one hundred twenty-five percent (125%) of the rent in effect upon the date of such expiration (subject to adjustment as provided in Paragraph 6 hereof and prorated on a daily basis), and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. The foregoing provisions of this Paragraph 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord. Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender and any attorneys fees and costs. 12. TAXES ON TENANT'S PROPERTY. a Tenant shall be liable for and shall pay, at least ten (10) days before delinquency, all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant. Tenant shall, upon demand, repay to Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment. - -------------------------------------------------------------------------------- 13. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the building or the Project or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the building were in satisfactory condition at such time. Without limiting the foregoing, Tenant's execution of the Notice attached hereto as EXHIBIT "C" shall constitute a specific acknowledgement and acceptance of the various start-up inconveniences that may be associated with the use of the Common Areas such as certain construction obstacles including scaffolding, delays in use of freight elevator service, certain elevators not being available to Tenant, the passage of work crews using elevators, uneven air conditioning services and other typical conditions incident to recently constructed office buildings. 14. ALTERATIONS. a Tenant shall make no alterations, additions or improvements in or to the Premises without Landlord's prior written consent,* and then only by contractors or mechanics approved by Landlord such consents and approvals by Landlord shall not be unreasonably withheld or delayed. Tenant shall submit to Landlord plans and specifications for any proposed alterations, additions or improvements to the Premises, and may not make such alterations, additions or improvements until Landlord has approved of such plans and specifications. Tenant shall construct such alterations, additions or improvements in accordance with the plans and specifications approved by Landlord, and shall not amend or modify such plans and specifications without Landlord's prior written consent. If the proposed change requires the consent or approval of any lessor of a superior lease, or the holder of a mortgage encumbering the Premises, such consent or approval must be secured prior to the construction of such alteration, addition or improvement.** Tenant agrees that there shall be no construction of partitions or other obstructions which might interfere with Landlord's free access to mechanical installations or service facilities of the building or interfere with the moving of Landlord's equipment to or from the enclosures containing said installations or facilities. All such work shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all laws, rules, orders, ordinances, regulations and requirements of all governmental agencies, offices and boards having jurisdiction, and in full compliance with the rules, regulations and requirements of the Insurance Service Office, and of any similar body. Before commencing any work, Tenant shall give Landlord at least ten (10) days written notice of the proposed commencement of such work and shall, if required by Landlord and other than for the work described in the Work Letter Agreement of even date herewith secure at Tenant's own *unless such alterations, additions, or improvements are less than a cost of Five Thousand and No/100 Dollars ($5,000.00). **and Landlord agrees to cooperate in obtaining any such consent or approval. 5 7 cost and expense, a completion and lien indemnity bond satisfactory to Landlord for said work if said work costs more than $100,000. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or materials claimed to have been furnished to Tenant, will be discharged by Tenant, by bond or otherwise, within (10) ten days after the filing thereof, at the cost and expense of Tenant. All alterations, additions or improvements upon the Premises made by either party, including (without limiting the generality of the foregoing) all wallcovering, built-in cabinet work, paneling and the like, shall, ---------- - --------------, become the property of Landlord, and shall remain upon, and be surrendered with the Premises as a part thereof, at the end of the term hereof. - ------------------------------------------------------------------------------- b. All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the lease term.-------------------- If Tenant shall fail to remove all of its effects from the Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof. In such event, Tenant agrees to pay Landlord upon demand any and all expenses incurred in such removal, including court costs and attorneys fees and storage charges on such effects, for any length of time that the same shall be in Landlord's possession. Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale upon any amounts due under this Lease from Tenant to Landlord and upon the expense incident to the removal and sale of said effects. 15. REPAIRS. a. By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair. Subject to Paragraph 23 hereof. Tenant shall keep, maintain and preserve the Premises in first class condition and repair, normal wear and tear excepted, and shall, when and if needed, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof. Tenant shall, upon the expiration or sooner termination of the term hereof, surrender the Premises to Landlord in the same condition as when received, usual and ordinary wear and tear excepted. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any party thereof. The parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises, the building, the Project or the Common Area except as specifically herein set forth. b. Anything contained in Paragraph 15a above to the contrary notwithstanding, Landlord shall repair and maintain the structural portions of the building and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord, unless such maintenance and repairs are caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 23 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. 16. LIENS. Tenant shall not permit any mechanics', materialmens' or other liens to be filed against the building or the Project nor against Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payments in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest at the maximum rate per annum permitted by law from the date of such payment by Landlord. 17. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times (except as provided below) have the right to enter the Premises to inspect the same, upon reasonable prior notice to Tenant, to supply janitor service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants, upon reasonable prior notice to Tenant, to post notices of nonresponsibility, to alter, improve or repair the Premises or any other portion of the Building,* all without being deemed guilty of any eviction of Tenant and without abatement of rent. Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, provided that the business of Tenant shall be interfered with as little as reasonably practicable. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. 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 to the Premises obtained by Landlord by any of said means, or otherwise, shall not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant. It is understood and agreed that no provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein by Landlord. *(with reasonable prior notice to Tenant for non-routine repairs and maintenance) 18. UTILITIES AND SERVICES. Provided that Tenant is not in default under this Lease, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services, attached hereto as EXHIBIT "D", subject to the conditions and in accordance with the standards set forth therein. Landlord's failure to furnish any of the foregoing items when such failure is caused by (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or by (v) any other cause beyond Landlord's reasonable control, shall not result in any liability to Landlord. In addition, tenant shall not be entitled to any abatement or reduction of rent by reason of such failure, no eviction of Tenant shall result from such failure and Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord shall diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord. Landlord may at its option require Tenant to pay, as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage. In addition, Landlord may install separate meter(s) for the Premises, at Landlord's -------- sole expense, and Tenant thereafter shall pay all charges of the utility providing service and Landlord shall make an appropriate adjustment to account for the fact Tenant is directly paying such metered charges. KOL 3/88 6 8 19. BANKRUPTCY. If Tenant shall file a petition in bankruptcy under any provision of the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within thirty (30) days from the date thereof, or if a receiver or trustee shall be appointed of Tenant's property and the order appointing such receiver of trustee shall not be set aside or vacated within thirty (30) days after the entry thereof, or if Tenant shall assign Tenant's estate or effects for the benefit of creditors, ------------------------------- then in any such event Landlord may terminate this Lease, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord. In such case, notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall, upon such termination, be entitled to recover damages in the amount provided in Paragraph 25b hereof. Neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or order of any court shall be entitled to possession of the Premises but shall surrender the Premises to Landlord. Nothing contained herein shall limit or prejudice the right of Landlord to recover damages by reason of any such termination equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved; whether or not such amount is greater, equal to or less than the amount of damages recoverable under the provisions of this Paragraph 19. 20. INDEMNIFICATION AND EXCULPATION OF LANDLORD. a. Tenant shall indemnify, defend and hold Landlord harmless from 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, the Building, the Project or the Common Area.** Tenant shall further indemnify, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the terms of this Lease, or arising from any act, neglect, fault or omission of Tenant or of its agents or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to person in, upon or about the Premises from any cause whatsoever except that which is caused by the failure of Landlord to observe any of the terms and conditions of this Lease where such failure has persisted for an unreasonable period of time after written notice of such failures. Tenant hereby waives all its claims in respect thereof against Landlord. b. Neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable to tenant or its partners, directors, officers, contractors, agents, employees, invitees, sublessees or licensees, for any loss, injury or damage to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss, unless solely caused by or solely resulting from the gross negligence or willful misconduct of Landlord or its employees or agents in the operation or maintenance of the Premises, the building, or the Project without contributory negligence on the part of Tenant or any of its sublessees or licensees or its or their employees, agents or contractors, or any other lessees or occupants of the building or Project. Further, neither Landlord nor any partner, director, officer, agent or employee of Landlord shall be liable (i) for any such damage caused by other lessees or persons in or about the building or Project, or caused by quasi-public work; or (ii) for consequential damages arising out of any loss of the use of the Premises of any equipment or facilities therein by Tenant or any person claiming through or under Tenant. 21. DAMAGE TO TENANT'S PROPERTY. *Notwithstanding the provisions of Paragraph 20 to the contrary, Landlord or its agents shall not be liable for (i) any damage to any property entrusted to employees of the building or Project, (ii) loss or damage to any property by theft or otherwise, (iii) 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 the building or from the pipes, appliances or plumbing work therein or from the roof, street or sub-surface or from any other place or resulting from dampness or any other cause whatsoever. Landlord or its agents shall not be liable for interference with light or other incorporeal hereditaments, nor shall Landlord be liable for any latent defect in the Premises or in the building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the building or of defects therein or in the fixtures or equipment. 22. TENANT'S INSURANCE. a. Tenant shall, during the term hereof and any other period of occupancy, at its sole cost and expense, keep in full force and effect the following insurance: (1) Standard form property insurance insuring against the perils of fire, extended coverage, vandalism, malicious mischief, special extended coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon all property owned by Tenant for which Tenant is legally liable or that was installed at Tenant's expense, and which is located in the Project including, without limitation, furniture, fittings, installations, fixtures (other than Tenant improvements installed by Landlord), and any other personal property in an amount not less than ninety percent (90%) of the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord or any mortgagees of Landlord shall be conclusive. This insurance policy shall also be upon direct or indirect loss of Tenant's earnings attributable to Tenant's inability to use fully or obtain access to the Premises, Building or Project in an amount as will properly reimburse Tenant. Such policy shall name Landlord and any mortgagees of Landlord as insured parties, as their respective interests may appear. (2) Comprehensive General Liability insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $1,000,000 Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with such liability amount to be adjusted from year to year to reflect increases in the Consumer Price Index. The policy shall insure the hazards of the Premises and Tenant's Operations thereon, independent contractors, contractual liability (covering the indemnity contained in Paragraph 20 hereof) and shall (a) name Landlord as an additional insured, (b) contain a cross liability provision and (c) contain a provision that the insurance provided the Landlord hereunder shall be primary and non-contributing with any other insurance available to the Landlord. (3) Workers' Compensation and Employer's Liability insurance (as required by state law). (4) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would protect itself. b. All policies shall be written in a form satisfactory to Landlord and shall be taken out with insurance companies holding a General Policyholders Rating of "A" and a Financial Rating of "X" or better, as set forth in the most current issue of Best's Insurance Reports. Within ten (10) days after the execution of this Lease, Tenant shall deliver to Landlord copies of policies or certificates evidencing the existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancellable or reducible in coverage except after thirty (30) days prior written notice to Landlord. Tenant shall, within ten (10) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as additional rent. If Landlord obtains any insurance that is the responsibility of Tenant under this Paragraph, Landlord shall deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed. *Except to the extent of Landlord's or its employees' or agents' gross negligence or willful misconduct, **Except to the extent of Landlord's or its employees' or agents' negligence or willful misconduct, 7 9 c. During the term of this Lease, Landlord shall insure the Building (excluding any property which Tenant is obligated to insure under Subparagraphs 22a and b hereof) against damage with All-Risk insurance and public liability insurance, all in such amounts and with such deductions as Landlord considers appropriate.* Landlord may, but shall not be obligated to, obtain and carry any other form or forms of insurance as it or Landlord's mortgagees may determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums, as provided herein, Tenant acknowledges that it has no right to receive any proceeds from any insurance policies carried by Landlord. *upon written request of Tenant with reference to this Subparagraph 22c, Landlord shall provide Tenant with a copy of a certificate of Landlord's insurance. d. Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Building. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as additional rent within ten (10) days after being billed therefore by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Tenant Improvements showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. e. If any of Landlord's insurance policies shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, reduction of coverage, threatened reduction of coverage, increase in premiums, or threatened increase in premiums, within forty-eight (48) hours after notice thereof, Landlord may, at its option, either terminate this Lease or enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay the cost thereof to Landlord as additional rent. Landlord shall not be liable for any damage or injury caused to any property of Tenant or of others located on the Premises resulting from such entry. If Landlord is unable, or elects not to remedy such condition, then Landlord shall have all of the remedies provided for in this Lease in the event of a default by Tenant. Notwithstanding the foregoing provisions of this Subparagraph 22e, if Tenant fails to remedy as aforesaid, Tenant shall be in default of its obligation hereunder and Landlord shall have no obligation to remedy such default. f. All policies of insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by policies of insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby. 23. DAMAGE OR DESTRUCTION. See Addendum "1" Item 8. - -------------------------------------------------------------------------------- 8 10 24. EMINENT DOMAIN. a. In case all of the Premises, or such part thereof as shall substantially interfere with Tenant's use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. Tenant shall not assert any claim against Landlord or the taking authority for any compensation of such taking, and Landlord shall be entitled to receive the entire amount of an award without deduction for any estate or interest of Tenant. In the event the amount of property or the type of estate taken shall not substantially interfere with the conduct of Tenant's business, Landlord shall be entitled to the entire amount of the award without deduction for any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition prior to such partial taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which and to the part of the Premises of which, Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant, or for moving expenses or for the unamortized portion of tenant improvements paid by Tenant. b. In the event of taking of the Premises or any part thereof for temporary use, (1) this Lease shall be and remain unaffected thereby and rent shall not abate, and (2) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations. For purpose of this Subparagraph 24b, a temporary taking shall be defined as a taking for a period of 270 days or less. 25. DEFAULTS AND REMEDIES. a. The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (1) The ----------- abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for ten (10) business days or longer while in default of any provision of this Lease. (2) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, - --------------- within five (5) days after notice to Tenant that such payment is due. (3) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this lease to be observed or performed by Tenant, other than as specified in Subparagraph 25a.(1) or (2) above, where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant. If the nature of Tenant's default is such that more than ten (10) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure with said ten (10) day period and thereafter diligently prosecute such cure to completion. ----------------------------------------------------------------- (4) The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. * b. In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this lease then Landlord may recover from Tenant: (1) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (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 Tenant proves could have been reasonably avoided; plus (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 that Tenant proves could be reasonably avoided; plus (4) any other amount necessary to compensate Landlord for all the 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. As used in Subparagraphs 25b(1) and (2) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law. As used in Subparagraph 25b(3) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). c. In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this paragraph 25c shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. d. In the event of the abandonment of the Premises by Tenant or in ----------- the event that Landlord shall elect to re-enter as provided above or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this lease as provided above, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof for the term for this lease on terms and conditions as Landlord in its sold discretion may deem advisable with the right to make alterations and repairs to the Premises. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises; fourth, to the payment of rent due and unpaid hereunder and the residue, if any, shall be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant * (5) A default by Tenant under the lease with Landlord for Suites 200 and 400 at 12636 High Bluff Drive. 9 11 shall pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred, including but not limited to brokers' commissions, by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. e. All rights, options and remedies of Landlord contained in this Lease shall be construed and held to cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one of all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver. The consent or approval of Landlord to or 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 similar acts by Tenant. 26. ASSIGNMENT AND SUBLETTING a. Tenant shall not voluntarily assign or encumber 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 prior written consent which shall not be unreasonably withheld or delayed. Any assignment, encumbrance or sublease without Landlord's prior written consent shall be voidable at Landlord's election and shall constitute a default. ------------------------------------- No consent to an assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this Paragraph. Tenant shall only notify Landlord in writing of Tenant's intent to assign, encumber or sublease this Lease, the name of the proposed assignee or sublessee, information concerning the financial responsibility of the proposed assignee or sublessee and the terms of the proposed assignment or subletting, and Landlord shall, within thirty (30) days of receipt of such written notice and additional information requested by landlord concerning the proposed assignee's or sublessee's financial responsibility elect one of the following: (1) consent to such proposed assignment, encumbrance or sublease; or (2) refuse such content, which refusal shall be on reasonable grounds. --------------------------------------------- In addition, a condition to Landlord's consent to any assignment, transfer or hypothecation of this Lease shall be the delivery to Landlord of a true copy of the fully executed instrument of assignment, transfer of hypothecation, and the delivery to Landlord of an agreement executed by the assignee in form and substance satisfactory to Landlord and expressly enforceable by Landlord, whereby the assignee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. b. As a condition to Landlord's consent to any sublease, such sublease shall provide that it is subject and subordinate to this Lease and to all mortgages: that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (1) terminate the sublease or (2) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee shall attorn to Landlord, but that nevertheless Landlord shall not (1) be liable for any previous act or omission of Tenant under such sublease. (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent. c. In the event that Landlord shall consent to an assignment or sublease under the provisions of this Paragraph 26, Tenant shall pay Landlord's processing costs and attorney's fees incurred in giving such consent. If Landlord shall consent to any assignment of this Lease, Tenant shall pay to Landlord, as additional rent ------ of all sums and other considerations payable to and for the benefit of Tenant by the assignee on account of the assignment, as and when such sums and other consideration** are due and payable by the assignee to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant's liability for the same. Tenant shall instruct the assignee to pay such sums and other consideration directly to Landlord). If for any proposed sublease Tenant receives rent or other consideration, either initially or over the term of the sublease, in excess of the rent called for hereunder or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account. Tenant shall pay to Landlord as additional rent hereunder* ------ of the excess of each such payment of rent or other consideration received by Tenant** promptly after its receipt. Landlord's waiver or consent to any assignment or subletting shall not relieve Tenant or any assignee or sublessee from any obligation under this Lease whether or not accrued. Occupancy of all or part of the Premises by parent or subsidiary companies of Tenant shall not be deemed an assignment or subletting. ----------------------------------------------------------------- * one-half (1/2) ** after Tenant's recovery of reasonable, actual, out-of-pocket expenses in connection with such assignment or sublease (including, without limitation, a subtenant improvement allowance) and other monetary concessions. 27. SUBORDINATION a. Subject to Addendum 1. Item 2. Without the necessity of any additional document being executed by tenant for the purpose of effecting a subordination and at the election of Landlord or any mortgage with a lien on the building or any ground lessor with respect to the building, this Lease shall be subject and subordinate at all times to: (1) all ground leases or underlying leases which may not exist or hereafter be executed affecting the building or the land upon which the building is situated or both; and (2) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. b. Subject to Addendum 1, Item 2, Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates 10 12 for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason. Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority of subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Should Tenant fail to sign and return any such documents within ten (10) business days of request Tenant shall be in default, and Landlord may, at Landlord's option, terminate the Lease provided written notice of such termination is received by Tenant prior to Landlord's receipt of such documents. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant. 28. ESTOPPEL CERTIFICATE. a. Within ten (10) days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a statement, in a form substantially similar to the form of Exhibit "E", certifying: (1) the date of commencement of this Lease; (2) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, and stating the date and nature of such modifications); (3) the date to which the rental and other sums payable under this Lease have been paid; (4) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (5) such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. b. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (1) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (2) that there are no uncured defaults in Landlord's performance, and (3) that not more than one (1) month's rental has been paid in advance. Tenant's failure to deliver said statement to Landlord within ten (10) working days of receipt shall constitute a default under this Lease and Landlord may, at Landlord's option, terminate the Lease, provided written notice of such termination is received by Tenant prior to Landlord's receipt of said statement. - ------------------------------------------------------------------------------- 30. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the "Rules and Regulations", a copy of which is attached hereto and marked Exhibit "F" and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the building or Project of any of said Rules and Regulations. 31. CONFLICT OF LAWS. This Lease shall be governed by and construed pursuant to the laws of the state in which the premises are located. 32. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. 33. SURRENDER OF PREMISES. 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, operate as an assignment to it of any or all subleases or subtenancies. Upon the expiration or termination of this Lease. Tenant shall peaceably surrender the Premises and all alternations and additions thereto, broom clean the Premises, leave the Premises in good order, repair and condition, reasonable wear and tear excepted, and comply with the provisions of Paragraph 15. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not be sufficient to constitute a termination of this Lease or a surrender of the Premises. 34. PROFESSIONAL FEES. a. If Landlord should bring suit for possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease, or for any other relief against Tenant hereunder, or in the event of any other litigation or appeal between the parties with respect to this lease, then all costs and expenses, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. If Landlord employs a collection agency to recover delinquent charges, Tenant agrees to pay all collection agency fees charged to Landlord in addition to rent, late charges, interest and other sums payable under this Lease. Tenant shall pay a charge of $75 to Landlord for preparation of a demand for delinquent rent. b. If Landlord is named as a defendant in any suit or appeal brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as appraisers', accountants' and attorneys' fees. 35. PERFORMANCE BY TENANT. All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money owned to any party other than Landlord, for which it is liable hereunder, or if Tenant shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, making any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permissible by law, from the date of such payment by Landlord, shall be payable to Landlord on demand. Tenant covenants to pay any such sums, and Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the non-payment thereof by Tenant as are set forth in Paragraph 25. 11 13 36. 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 mortgage covering 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 a judicial foreclosure, if such should prove necessary to effect a cure. 37. DEFINITION OF LANDLORD The term "Landlord," as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. Without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. 38. WAIVER The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of Landlord to insist upon the performance by Tenant in strict accordance with said terms. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rental and additional rent or other sum then due shall be deemed to be other than on account of the earliest installment of such rent or other amount due, nor shall any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy in this Lease provided. 39. IDENTIFICATION OF TENANT. If more than one person executes this lease as Tenant, (1) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (2) the term "Tenant" as used in this Lease shall mean and include each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. 40. PARKING. a. Tenant shall have the right to use the type and number of spaces indicated in Section 1. All such spaces shall be provided to Tenant at no cost. b. The use by Tenant, its employees and invitees, of the parking facilities of the Project shall be on the terms and conditions set forth in Exhibit G attached hereto and by this reference incorporated herein, and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in Exhibit G, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. 41. FORCE MAJEURE. Except as applied to Paragraph 23, Landlord shall have no liability whatsoever to Tenant on account of (1) the inability of Landlord to fulfill, or delay in fulfilling, any of Landlord's obligations under this Lease by reason of strike, other labor trouble, governmental preemption of priorities or other controls in connection with a national or other public emergency, or shortages of fuel, supplies or labor resulting therefrom or any other cause, whether similar or dissimilar to the above, beyond Landlord's reasonable control; or (2) any failure or defect in the supply, quantity or character of electricity or water furnished to the Premises, by reason of any requirement, act or omission of the public utility or others furnishing the Project with electricity or water, or for any other reason, whether similar or dissimilar to the above, beyond Landlord's reasonable control. If this Lease specifies a time period for performance of an obligation of Landlord, that time period shall be extended by the period of any delay in Landlord's performance caused by any of the events of force majeure described above. 42. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 43. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. 44. TIME. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. 12 14 45. PRIOR AGREEMENT OR AMENDMENTS. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in the Lease and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of the Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors-in-interest. 46. SEPARABILITY. Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, and such other provisions shall remain in full force and effect. 47. RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the consent of the other. 48. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (1) The sole and exclusive remedy shall be against the Landlord's interest in the Project; (2) No partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership); (3) No service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); (4) No partner of Landlord shall be required to answer or otherwise plead to any service of process; (5) No judgment will be taken against any partner of Landlord; (6) Any judgment taken against any partner of Landlord may be vacated and set aside at any time nunc pro tunc; (7) No writ of execution will ever be levied against the assets of any partner of Landlord; (8) The obligations of Landlord under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; (9) These covenants and agreements are enforceable both by landlord and also by any partner of Landlord. 49. MODIFICATION FOR LENDER. If in connection with obtaining construction, interim or permanent financing for the Project the lender shall request reasonable modifications in this lease as a condition to such financing. Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 50. FINANCIAL STATEMENTS. At any time during the term of this Lease, Tenant shall upon ten (10) days prior written notice from Landlord, provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year. Such statement shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 51. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying the rent required under this lease and paying all other charges and performing all of the covenants and provisions aforesaid on Tenant's part to be observed and performed under this Lease. Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 52. TENANT AS CORPORATION. If Tenant executes this Lease as a corporation, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to landlord on execution hereof, and in accordance with the bylaws of Tenant and that this Lease is binding upon Tenant in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: Weyerhaeuser Mortgage Company, ADDRESS: Weyerhaeuser Mortgage Company a California corporation, and 6320 Canoga Avenue Fort Wyman, Inc., a Michigan Woodland Hills, CA 91367 corporation, tenants in common By: Weyerhaeuser Mortgage Company ADDRESS: 12626 High Bluff Drive, managing tenant in common Suite 37 San Diego, CA 92130 By: /s/ Dorothy Forbes ------------------------------ Dorothy Forbes, Vice President TENANT: STAC ELECTRONICS, a California corporation By: /s/ John Witzel ------------------------------ John Witzel, CFO 13 15 WORK LETTER AGREEMENT This Work Letter Agreement, is entered into as of the 12th day of July, 1994, by and between Weyerhaeuser Mortgage Company, * ("Landlord") and STAC Electronics, a California corporation ("Tenant") * a california corporation, and Fort Wyman, Inc., a Michigan corporation, tenants in c RECITALS: A. Concurrently with the execution of this Work Letter Agreement, Landlord and Tenant have entered into a lease (the "Lease") covering certain premises (the "Premises") more particularly described in Exhibit "A" attached to the Lease. B. In order to induce Tenant to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this Work Letter Agreement may apply thereto) and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant hereby agree as follows: - ------------------------------------------------------------------------------- 2. TENANT IMPROVEMENTS Reference herein to "Tenant Improvements" shall include all work to be done in the Premises pursuant to the Tenant Improvement Plans described in Paragraph 3 below, including, but not limited to, partitioning, doors, ceilings, floor coverings, wall finishes (including paint and wallcovering), electrical (including lighting, switching, telephones, outlets, etc.), plumbing, heating, ventilating and air conditioning, fire protection, cabinets and other millwork. Whenever Landlord's consent is required in this Work Letter Agreement it shall not be unreasonably withheld or delayed. 3. TENANT IMPROVEMENT PLANS. Immediately after the execution of the Lease, Tenant agrees to meet with its architect and/or space planner for the purpose of preparing a space plan for the layout of the Premises. Based upon such space plan, Tenant's architect shall prepare final working drawings and specifications for the Tenant Improvements. Such final working drawings and specifications may be referred to herein as the "Tenant Improvement Plans." The Tenant Improvement Plans must be consistent with Landlord's standard specifications (the "Standards") for tenant improvements for the Building, as the same may be changed from time to time by Landlord. 4. NON-STANDARD TENANT IMPROVEMENTS. Landlord shall permit Tenant to deviate from the Standards for the Tenant Improvements; provided that (a) the deviations shall not be of a lesser quality than the Standards; (b) the total lighting for the Premises shall not exceed 1.65 watts per rentable square foot; (c) the deviations conform to applicable governmental regulations and necessary governmental permits and approvals have been secured; (d) the deviations do not require building service beyond the level normally provided to other tenants in the Building and do not overload the floors; and (e) Landlord has determined in its sole discretion that the deviations are of a nature and quality that are consistent with the overall objectives of the Landlord for the Building. 5. FINAL PRICING AND DRAWING SCHEDULE. After the preparation of the space plan and after Landlord's written approval thereof, Tenant ------------------------------------------------------ shall cause its architect to prepare and submit to Landlord the final working drawings and specifications referred to in Paragraph 3 hereof. Such working drawings shall be approved by Landlord and Tenant ----------------------------- and shall thereafter be submitted to the appropriate governmental body by Tenant's architect for plan checking and the issuance of a building permit. - --------- Tenant -------- shall cause to be made any changes in the plans and specifications necessary to obtain the building permit. Concurrent with the plan checking, Tenant shall have prepared a final pricing for Tenant's approval, -------------------------------- taking into account any modifications which may be required to reflect changes in the plans and specifications required by the City or County in which the Premises are located. After final approval of the working drawings, no further changes to the Tenant Improvement Plans may be made without the prior written approval from both Landlord and Tenant, such approval by Landlord not to be unreasonably withheld, and then only after agreement by Tenant to pay any excess costs resulting from the design and/or construction of such changes. Tenant hereby acknowledges that any such changes shall be subject to the terms of Paragraph 8 hereof. 6. CONSTRUCTION OF TENANT IMPROVEMENTS. After the Tenant Improvement Plans have been prepared and approved, the final pricing has been approved and a building permit for the Tenant Improvements has been issued, Tenant shall enter into a construction contract with its contractor for the installation of the Tenant Improvements in accordance with the Tenant Improvement Plans. Landlord shall supervise the completion of such work at no cost to Tenant. --------------------------------- The cost of such work shall be paid as provided in Paragraph 7 hereof. Landlord shall not be liable for any direct or indirect damages as a result of delays in construction beyond Landlord's reasonable control, including, but not limited to, acts of God. Inability to secure governmental approvals or permits, governmental restrictions, strikes, availability of materials or labor or delays by Tenant (or its architect or anyone performing services on behalf of Tenant). 7. PAYMENT OF COST OF THE TENANT IMPROVEMENTS. a. Landlord hereby grants to Tenant a "Tenant Allowance" of Zero and No/100------Dollars ($ -0- ) per square foot of Usable Area (as defined below) of the Premises for a total of Zero and No/100------Dollars ($ -0- ). Such Tenant Allowance shall be used only for: (1) Payment of the cost of preparing the space plan and the final working drawings and specifications, including mechanical, electrical, plumbing and structural drawings and of all other aspects of the Tenant Improvement plans. The Tenant Allowance will not be used for the payment of extraordinary design work not included within the scope of Landlord's building standard improvements or for payments to any other consultants, designers or architects other than Landlord's architect and/or space planner. 14 16 (2) The payment of plan check, permit and license fees relating to construction of the Tenant Improvements. (3) Construction of the Tenant improvements, including without limitation, the following: (a) Installation within the Premises of all partitioning doors, floor coverings, ceilings, wall coverings and painting millwork and similar items. (b) All electrical wiring, lighting fixtures, outlets and switches, and other electrical work to be installed within the Premises. (c) The furnishing and installation of all duct work, terminal boxes, diffusers and accessories required for the completion of the heating, ventilation and air conditioning systems within the Premises, including the cost of meter and key control for after-hour air conditioning. (d) Any additional Tenant requirements including, but not limited to, odor control, special heating, ventilation and air conditioning, noise or vibration control or other special systems. (e) All fire and life safety control systems such as fire walls, sprinklers, halon, fire alarms, including piping, wiring and accessories installed within the Premises. (f) All plumbing, fixtures, pipes and accessories to be installed within the Premises. (g) Testing and inspection costs. (h) Contractor's fees, including but not limited to any fees based on general conditions. (4) All other costs to be expended by Landlord in the construction of the Tenant Improvements, including those costs incurred by Landlord for construction of elements of the Tenant improvements in the Premises, which construction was performed by Landlord prior to the execution of this Lease by Landlord and Tenant (i.e., during or after the construction of the base Building and which construction is for the benefit of tenants and is customarily performed by Landlord prior to the execution of leases for such space in the Building for reasons of economics (examples of such construction would include the extension of mechanical [including heating, ventilating and air conditioning systems] and electrical distribution systems outside of the core of the Building wall construction, column enclosures and painting outside of the core of the Building, ceiling hanger wires and window treatment). b. The cost of each item shall be charged against the Tenant Allowance. In the event that the cost of installing the Tenant Improvements, as established by Landlord's final pricing schedule, shall exceed the Tenant Allowance, or if any of the Tenant Improvements are not to be paid out of the Tenant Allowance as provided in Paragraph 7a above, the excess shall be paid by Tenant to Landlord prior to the commencement of construction of the Tenant improvements. c. In the event that, after the Tenant Improvement Plans have been prepared and a price therefore established by Landlord, Tenant shall require any changes or substitutions to the Tenant Improvement Plans, any additional costs thereof shall be paid by Tenant to Landlord prior to the commencement of such work. Landlord shall have the right to decline Tenant's request for a change to the Tenant Improvement Plans if such changes are inconsistent with Paragraphs 3 and 4 above, or if the change would, in Landlord's opinion, unreasonably delay construction of the Tenant Improvements. d. In the event that the cost of the Tenant Improvements increases as set forth in Landlord's final pricing due to the requirements of any governmental agency, Tenant shall pay Landlord the amount of such increase within five (5) days of Landlord's written notice, provided, however, that Landlord shall first apply toward such increase any remaining balance in the Tenant Allowance. e. Any unused portion of the Tenant Allowance upon completion of the Tenant Improvements shall not be refunded to Tenant or available to Tenant as a credit against any obligations of Tenant under the Lease. f. As used in this Work Letter Agreement, the term "Usable Area" means the area of the Premises, as determined by measuring the area within the bounds of the inside surface of the glass in the outer wall of the Building and the surface facing the Premises of all partitions separating the Premises from the Building core, adjoining tenant space and public corridors or other common areas. No deductions shall be made for space occupied by structural or functional columns or other projections. The Usable Area of the Premises is 4,166 usable square feet. 8. COMPLETION AND RENTAL COMMENCEMENT DATE. The commencement of the term of the Lease and Tenant's obligation for the payment of rental under the Lease shall ---------------------------------- - ---------------------------------------- commence at the time provided in Section 1.g of the Lease. IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date first above written. LANDLORD: Weyerhaeuser Mortgage Company, a California corporation, and Fort Wyman, Inc., a Michigan corporation, tenants in common Weyerhaeuser Mortgage Company, managing tenant in common By: /s/ Dorothy Forbes ------------------------------- Dorothy Forbes, Vice President TENANT: STAC Electronics, a California corporation By: /s/ John Witzel ------------------------------- John Witzel, CFO By: ------------------------------- 15 17 ADDENDUM "1" 1. RENT ABATEMENT. Notwithstanding the provisions of Section 5 of this Lease, no Base Monthly Rent shall be due or payable for the second (2nd) through seventh (7th) full calendar months, inclusive, following the Commencement Date. 2. NON-DISTURBANCE. Notwithstanding the provisions of Section 27, in the event of a foreclosure of any mortgage or deed of trust or termination of any ground lease, so long as Tenant attorns to the successor fee owner or ground tenant, Tenant's quiet possession of the Premises will not be disturbed and its rights and obligations under this Lease will not be altered. 3. EARLY TERMINATION. Tenant shall have the right to terminate the Lease, effective on March 31, 1998, by providing Landlord at least six (6) months' prior written notice. 4. BUILDING SIGNAGE. Tenant, at Tenant's expense, shall have the right to place its name and/or logo on one (1) side of the exterior of the Building in a location to be selected by Tenant, subject to approval by Landlord (not to be unreasonably withheld or delayed provided such signage complies with the signage criteria contained in the CC&R's affecting the Project) and all governmental agencies. This sign is in addition to the signage provided in the lease for 12636 High Bluff Drive, Suite 400. 5. HAZARDOUS MATERIALS. The following provisions are added to Exhibit H (Hazardous Materials): (i) Landlord's consent under clause (b) of Exhibit H shall not be required for (1) Hazardous Materials, in reasonable quantities, customarily used in business offices, and (2) Hazardous Materials used in reasonable quantities in connection with the construction of repair of Improvements in the Premises, provided such Hazardous Materials are used and handled in accordance with all applicable laws. In addition, Landlord will not unreasonably withhold or delay its consent required under said clause (b) of Exhibit H for any other Hazardous Materials reasonably needed by Tenant in the ordinary course of Tenant's business, provided such Hazardous Materials are used and handled in accordance with all applicable laws. (ii) Landlord warrants to its actual knowledge Tenant that neither the Premises nor any other part of the Building in which the Premises are located contain any asbestos. Landlord also agrees that Tenant shall have no responsibility for any Hazardous Materials on or under the Premises, the Building, or the Project existing at the time of commencement of the Lease, or any such 18 Hazardous Materials thereafter released on or under the Project by anyone other than Tenant, its employees or agents. 6. Building Codes: ADA. Any work that is required by applicable law now or hereafter in effect to be done within the Premises (excluding structural components (except to the extent caused by Tenant) and restrooms, elevators, and other common areas) shall be the sole responsibility of Tenant. Except as provided in the preceding sentence, and notwithstanding any other provision of this Lease, Tenant shall have no responsibility to make or pay for improvements or other alterations to the Building to correct deficiencies under existing building codes or other applicable laws, restrictions or requirements, or to comply with future changes in building codes or other applicable laws, restrictions or requirements. Without limiting the foregoing, in the event that any improvements or alterations to the Building are required during the term of the Lease to comply with requirements of the Americans With Disabilities Act or applicable building codes relating to access to or within the Building (except for the Premises) by disabled persons, Landlord will be solely responsible for any such improvements or alterations. 7. Security. With Landlord's prior written approval, not to be unreasonably withheld or delayed, Tenant at its cost and expense and not as part of the costs described in Addendum "5" may install additional reasonable security devices for the Premises. 8. Damage or Destruction. The following is inserted into the Lease as Paragraph 23: 23. DAMAGE OR DESTRUCTION If the Premises or any Common Areas providing access thereto shall be damaged by fire or other casualty, Landlord shall restore the same subject to the terms and conditions set forth in this Paragraph 23. Such restoration shall be to substantially the condition prior to the casualty, except for modifications required by zoning and building codes and other laws or by any mortgagee, any other modifications to the Common Areas deemed desirable by Landlord (provided access to the Premises is not materially impaired), and except that Landlord shall not be required to repair or replace any of Tenant's furniture, furnishings, fixtures or equipment, or any alterations or improvements in excess of Tenant's improvements installed at a cost of up to $30 per usable square foot. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such damage or the repair thereof. However, as Tenant's sole compensation for such damage or destruction Landlord shall allow Tenant a proportionate abatement 19 of rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this lease and not occupied by Tenant as a result thereof (unless Tenant or its employees or agents caused the damage). Notwithstanding the foregoing to the contrary, Landlord may elect to terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage (such termination notice to include a termination date providing at least ninety (90) days for Tenant to vacate the Premises), if the Property shall be damaged by fire or other casualty or cause such that: (a) repairs to the Premises and Building and access thereto cannot reasonably be substantially completed within three hundred (300) days after the date of casualty without the payment of overtime or other premiums; (b) more than twenty-five percent (25%) of the Premises is substantially destroyed by the damage and fewer than twenty-four (24) months remain in the Term, subject to Tenant's right to avoid or limit such termination as set forth below; (c) the cost of the repairs, alterations, restoration or improvement work would exceed twenty-five percent (25%) of the replacement value of the Building and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; (d) the aggregate proceeds available from insurance fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty; or (e) as a result of the lawful application of insurance proceeds by any mortgagee to retire the mortgage debt, the insurance proceeds available for restoration fall short of the reasonable cost of the restoration required under this Paragraph 23 by an amount greater than $100,000 and Landlord determines in good faith not to repair or rebuild the Building in substantially the same configuration as before the casualty. If Landlord elects to terminate this lease under the circumstances described in Clause (b) of the preceding sentence, provided that the damage to the Property was not caused by the willful misconduct or reckless disregard for life or property of Tenant, Tenant may, by written notice to Landlord, given within thirty (30) days after receipt of Landlord's termination notice, avoid such termination by exercising a then available option to extend the term of this Lease upon the terms and conditions set forth in Addendum "3". Further, notwithstanding the foregoing, Tenant may terminate this lease if Tenant is unable to use all or any portion of the Premises as a result of fire or other casualty not caused by the willful misconduct or reckless disregard for life or property of Tenant, and: (a) Landlord fails to commence restoration work to the Building and access thereto within sixty (60) days after the damage occurs (Landlord's negotiation with insurance companies and 20 consultation with architects, engineers and contractors shall be deemed to be restoration work); or (b) Landlord fails to substantially complete such work within three hundred sixty five (365) days after the date of the casualty, or such additional time as may be necessary due to strikes, lockouts or other labor troubles, shortages of equipment or materials, governmental requirements, power shortages or outages or other causes beyond Landlord's reasonable control; or (c) such work is reasonably estimated (which estimate Landlord shall provide within sixty (60) days following the casualty), to take more than three hundred sixty five (365) days to substantially complete after the date of the casualty. In addition, Tenant may terminate this Lease if Tenant is unable to use more than twenty-five percent (25%) of the Premises as a result of fire or other casualty not caused by the willful misconduct or gross negligence of Tenant or its employees or agents, and fewer than twenty-four (24) months remain in the Term. In order to exercise any of the foregoing termination rights, Tenant must send Landlord at least sixty (60) but not more than one hundred twenty (120) days advance notice specifying the basis for termination, and such notice must be given no later than thirty (30) days following the occurrence of the condition serving as the basis for the termination right invoked by Tenant. Such termination right shall not be available to Tenant if Landlord substantially completes the repairs to the Premises and access thereto within sixty (60) days after Tenant's notice. Notwithstanding anything to the contrary contained herein, if Tenant, or its officers, employees, contractors, invitees, partners, or agents delay Landlord in performing the repairs, Landlord shall have additional time to complete the work equal to such delay, and Tenant shall pay Landlord all Rent for the period of such delay. If this Lease is terminated pursuant to this Paragraph 23, Tenant shall have the right, to be exercised within 10 days of such termination, to terminate any other lease it has for space within the Project. Tenant agrees that Landlord's obligation to restore, and the abatement of rent and the termination right provided herein, shall be Tenant's sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to terminate the Lease by reason of damage to the Premises, Project or Building, including all rights under California Civil Code, Sections 1932(2), 1933(4), and 1942, as the same may be modified or replaced hereafter. Tenant acknowledges that this Paragraph 23 represents the entire agreement between the parties respecting damage to the Premises, Project or Building. 21 ADDENDUM "2" OPERATING EXPENSES. For the purposes of this Section, the following terms are defined as follows: Base Year -- The calendar year in which this Lease Term commences. For the purposes of this Lease, the Base Year is defined as 1994. Comparison Year -- Each calendar year of the term after the Base Year. Tenant's -------------* Share of Operating Expenses shall be payable by Tenant to Landlord as follows: (a) Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), tenant shall pay Landlord an amount equal to Tenant's ------------* Share of the Operating Expenses incurred by Landlord in the Comparison Year which exceeds the total amount of Operating Expenses payable by Landlord for the Base Year. This excess is referred to as the "Excess Expenses." (b) To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison Year, an amount equal to Tenant's ------------* Share of the Excess Expenses payable during such Comparison Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's ------------* Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. (c) On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's ------------* Share of the Excess Expenses for the preceding Comparison Year. If Tenant's ------------* Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within thirty (30) days of the receipt of the statement. If such total exceeds Tenant's ------------* Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section shall survive the Expiration Date. (d) Tenant's ------------* Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Operating Expenses by more than five percent (5%). (f) Operating Expenses including any additional real estate taxes will be based on a ninety-five percent (95%) lease project for the entire base year and other years regardless of the current occupancy. (g) In no event shall Tenant be responsible for increases in Operating Expenses in excess of six percent (6%) per year on a cumulative basis. * Percentage 22 ADDENDUM "3" OPTION TO RENEW: Tenant shall have the right to extend the term of this Lease for one (1) consecutive five (5) year period (the "Option Term"), on the following terms and conditions: (a) Each Option Term shall commence when the prior term expires. Tenant must give written notice of its exercise of the option, and Landlord must actually receive such notice, no earlier than twelve (12) months and no later than six (6) months prior to the time that the Option Term would commence. (b) The option(s) to extend this Lease for any Option Term must be exercised consecutively. (c) All terms and conditions of this Lease shall apply during the Option Terms except as expressly provided in this Addendum. (d) Tenant shall have no right to exercise an option, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any *-------------------------- and continuing until the default is cured. (e) The period of time within which Tenant may exercise an option to extend the term of this Lease shall not be extended or enlarged by reason of Tenant's inability to exercise an option because of the provisions of Section (d) above. - ----------------------------------------------------------------------------- (g) The options granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant, without the prior written consent of Landlord. (h) The Base Monthly Rent during each option term shall be adjusted as of the commencement of each option term to ninety-five percent (95%) of the fair rental value of the Premises on the terms and conditions contained in this Lease as mutually agreed by Landlord and Tenant or, if they cannot agree on or before such commencement date, then as determined by an appraiser mutually selected by Landlord and Tenant. If Landlord and Tenant cannot agree on a single appraiser within five (5) days, then each shall select an appraiser. if the two appraisers cannot agree on said fair rental value within thirty (30) days, then the two appraisers shall appoint a third appraiser, and said fair rental value of the Premises shall be deemed to be the average of the two closest appraisals. Each appraiser shall be a disinterested member of the American Institute of Real Estate Appraisers, or a body of comparable standing, with at least five years' experience in commercial real estate appraisal. Landlord and Tenant shall each bear the cost of the appraiser appointed by them, and shall share equally the cost of the appraiser mutually selected by them or of the third appraiser appointed, if any. (i) Landlord will provide Tenant with a Ten Dollars ($10.00) per usable square foot refurbishment allowance. *in the payment of Base Monthly Rent or Operating Expenses 23 ADDENDUM "4" RIGHT OF REFUSALS. (a) At any time that Landlord determines to lease any space at 12626 High Bluff Drive or 12636 High Bluff Drive, subject to any other existing tenants' rights of refusal or extension options, Landlord shall notify Tenant in writing. Within five (5) business days after receipt of Landlord's notice, Tenant shall have the option, to be exercised by delivery of written notice to Landlord, to lease the respective space. In the event Landlord notifies Tenant for multiple contiguous suites, then Tenant shall either lease none of the suites or all of the suites being offered. In the event Tenant timely exercises such option, the suites shall be added to the Premises, effective as of the date specified in Landlord's notice. In the event Tenant does not timely exercise such option, Tenant's rights shall terminate and shall not apply to any subsequent leasing of the space unless Landlord does not execute a lease for the space by a third party, in which case Tenant's rights shall be reinstated. (b) In the event Tenant timely exercises such option, such space shall be tendered to Tenant in "as is" condition. (c) In the event Tenant timely exercises such option, such space shall be subject to all of the terms and conditions of this Lease, provided that the Base Monthly Rent shall be One and 25/100 Dollar ($1.25) per square foot per month, plus electricity, and the Tenant's Share shall be proportionately increased to reflect the inclusion of such space in the Premises, and provided further that no free rent, abatement, discount, or other concession shall apply with respect to the space except if Tenant is currently in the free rent period, at which time the remaining free rent will apply. (d) Tenant shall have no right to exercise its right of refusal, notwithstanding any other provision of this Lease to the contrary, during the time commencing from the date of any default* under section 25 of this Lease and continuing until the default is cured. (e) The period of time within which Tenant may exercise its right of refusal shall not be extended or enlarged by reason of Tenant's inability to exercise such right of refusal because of the provisions in Section (d) above. - ----------------------------------------------------------------------------- (g) The right of refusal granted to Tenant may not be voluntarily or involuntarily exercised by or assigned to any person or entity other than Tenant without the prior written consent of Landlord. * in the payment of Base Monthly Rent or Operating Expenses 24 ADDENDUM "5" TENANT IMPROVEMENTS/BASE MONTHLY RENTAL REDUCTION. Tenant, at Tenant's expense, will pay for all the costs associated with the following: (a) Space planning. (b) Construction documents. (c) Building permits. (d) Construction of tenant improvements. (e) Moving expenses. (f) Tenant signage costs. (g) All other costs relating to the build-out of the Premises. As a concession for Tenant paying for these above mentioned costs, Landlord will reduce Tenant's* Base Monthly Rent in Section 1(h) of the Lease in accordance with an amortization formula as follows: Present Value: Total costs as outlined above, up to a maximum of One Hundred Twenty-Three Thousand Four Hundred Eighty and No/100 Dollars ($123,480.00; $30.00 per usable square foot). Amortization Term: Sixty (60) months. (Lease term is 66 months - 6 months' rent abatement = 60 months.) Interest Rate of Amortization: Six percent (6%). As an example, should Tenant expend the maximum amount of $123,480, this amount shall be amortized at six percent (6%), which would reduce Tenant's Base Monthly Rent by two Thousand Three Hundred Eighty Seven and 21/100 Dollars ($2,387.21) per month. BID PROCESS. Tenant will cause at least two and not more than five - ---------------------------- contractors to bid for the construction of tenant improvements including the following contractors: (a) Roel Construction (b) Consolidated Contracting The contractor selected shall be one of the two lowest bidders, provided that all bids are adjusted for inconsistent assumptions to reflect an "apples-to-apples" comparison. Tenant, at its sole discretion, shall select the contractor in accordance with these terms. Landlord will not impose any charge for profit, overhead, or supervision in connection with the construction of tenant improvements. Landlord, at Landlord's expense, shall have the right to supervise the construction of tenant improvements from a landlord's perspective. In no event shall Landlord's election to supervise the tenant improvements relieve Tenant from its obligation to perform the tenant improvements in accordance with this Lease. Reduction in Prepaid Rent and Security Deposit. If the Base Monthly Rent is reduced pursuant to the above provision entitled Tenant Improvements/Base Monthly Rental Reduction, the required Prepaid Rent as set forth in Section 1(k) and the required Total Security Deposit as set forth in Section 1(1) shall be reduced by the same amount and Landlord shall refund to Tenant any excess Prepaid Rent and Total Security Deposit paid to Landlord within 10 days after the reduction is determined. * Landlord reserves the right to reimburse Tenant prior to the Commencement Date of the Lease, the full amount expended by Tenant for the above-mentioned costs but not to exceed $123,480 or 30.00 per usable square foot. Should Landlord exercise this reimbursement right and make said reimbursement to Tenant, there shall be no reduction in Tenants Base Monthly Rent, Prepaid Rent, or Total Security Deposit as outlined below. 25 EXHIBIT A OUTLINE OF FLOOR PLAN OR PREMISES [FLOOR PLAN] A-1 26 EXHIBIT B THE PROJECT [MAP SHOWING INTERSTATE 5 AND HIGH BLUFF DRIVE, WITH ADDRESSES OF 12626 AND 12636] B-1 27 EXHIBIT C NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE To: _________________________________________ Date:_________________ _________________________________________ _________________________________________ Re: Lease dated _____________________________, 19___, between __________________ _________________________, Landlord, and _______________________________________ Tenant, concerning Suite ____________ located at _______________________________ Gentlemen: In accordance with the subject Lease, we wish to advise and/or confirm as follows: 1. That the Premises have been accepted herewith by the Tenant as being substantially complete in accordance with the subject Lease and that there is no deficiency in construction. 2. That the Tenant has possession of the subject Premises and acknowledges that under the provisions of the subject Lease the term of said Lease shall commence as of _______________________ for a term of _______________ ending on ____________________________. 3. That in accordance with the subject Lease, rental commenced to accrue on _______________________________. 4. If the commencement date of the subject Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in said Lease. 5. Rent is due and payable in advance on the first day of each and every month during the term of said Lease. Your rent checks should be made payable to ____________________________________________________________________ at ____________________________________________________________________________. 6. The exact number of rentable square feet within the Premises is _________________ square feet. 7. Tenant's Percentage, as adjusted based upon the exact number of rentable square feet within the Premises, is ____________%. AGREED AND ACCEPTED LANDLORD: TENANT: ___________________________________ ____________________________________ By: _______________________________ ____________________________________ By: ________________________________ C-1 28 EXHIBIT D STANDARD FOR UTILITIES AND SERVICES The following Standards for Utilities and Services are in effect. Landlord reserves the right to adapt nondiscriminatory modifications and additions thereto. As long as Tenant is not in default under any of the terms, conditions, provisions or agreements of this Lease, Landlord shall: 1. Provide non-attended automatic elevator facilities Monday through Friday, except holidays from 8 A.M. to 6 P.M., and have one elevator available at all other times. 2. On Monday through Friday, except holidays, from 7 A.M. to 6 P.M., and on Saturday mornings from 7 A.M. to 4 P.M. (and other times for an agreed upon rate of $15.00 per hour), ventilate the Premises and furnish air conditioning or heating on such days and hours, when in the reasonable judgment of Landlord it may be required for the comfortable occupancy of the Premises. The air conditioning system achieves maximum cooling when the window coverings are closed. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Premises closed whenever the system is in operation. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the building chilled and hot water air conditioning supply lines. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter mechanical installations or facilities of the building or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations under this section, including keeping window coverings closed as needed. Such work shall be charged at hourly rates equal to then-current journeymen's wages for air conditioning mechanics. 3. Landlord shall furnish to the Premises, during the usual business hours on business days, electric current as required by the building standard office lighting and fractional horsepower office business machines in an amount not to exceed .025 KWH per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, as established by an independent licensed engineer. Tenant agrees not to use any apparatus or device in, or upon, or about the Premises which may in any way increase the amount of such services usually furnished or supplied to said Premises, and tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amount of such services without written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitled Landlord to the rights therein granted for such breach. At all times Tenant's use of electric current shall never exceed the capacity of the feeders to the building or the risers or wiring installation and Tenants shall not install or use or permit the installation or use of any computer or electronic data processing equipment in the Premises without the prior written consent of Landlord. 4. Water will be available in public areas for drinking and lavatory purposes only, but if Tenant requires, uses or consumes water for any purposes in addition to ordinary drinking and lavatory purposes, of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy. Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such. 5. Provide janitor service to the premises, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant, and if to be kept clean by Tenant, non one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they shall be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and by persons approved by Landlord. Tenant shall pay to Landlord the cost or removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electric systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations or improvements, shall have been completed, and shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly understood and agreed that any convenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord id unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. 6. This Lease is a "plus electricity" lease in which Tenant shall pay for their use of electricity throughout the term of the Lease. Each floor of the project is separately metered, and Tenant shall pay to Landlord each month their pro rata share of electrical consumption. D-1 29 EXHIBIT E TENANT ESTOPPEL CERTIFICATE The undersigned, _________________________________ ("Landlord"), with a mailing address c/o ___________________________ and ___________________________ _______________________ ("Tenant"), hereby certify to _________________________ a _________________________________________________________________, as follows 1. Attached hereto is a true, correct and complete copy of that certain lease dated ______________________ 19 ___, between Landlord and Tenant (the "Lease"), which demises premises located at ______________________ __________________________. The Lease is now in full force and effect and has not been amended, modified or supplemented, except at set forth in Paragraph 4 below. 2. The term of the Lease commenced on ____________________________ 19 ___ 3. The term of the Lease shall expire on _________________________, 19 ___. 4. The Lease has (initial one): (_____) not been amended, modified, supplemented, extended, renewed or assigned. (_____) been amended, modified, supplemented, extended, renewed or assigned by the following described agreements copies of which are attached hereto: _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ 5. Tenant has accepted and is now in possession of said premises. 6. Tenant and Landlord acknowledge that the Lease will be assigned to _____________________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of _________________________________ is obtained, and that until further notice, payments under the Lease may continue as heretofore. 7. The amount of fixed monthly rent is $________________. 8. The amount of security deposits (if any) is $_______________. No other security deposits have been made. 9. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent under the Lease has been paid for more than thirty (30) days in advance of its due date. 10. All work required to be performed by Landlord under the Lease has been completed. 11. There are not defaults on the part of the Landlord or Tenant under the Lease. 12. Tenant has no defense as to its obligations under the Lease and claims no set-off or counterclaim against Landlord. 13. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies except as provided in the lease. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that __________ ________________________ is about to fund a loan to Landlord and that __________________________________ is relying upon the representations herein made in funding such loan. IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of _______________________, 19 _____. LANDLORD: By: _______________________________ TENANT: By: _______________________________ By: _______________________________ E-1 30 EXHIBIT F RULES AND REGULATIONS 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the building or Project without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises. Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Project. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not open to the general public but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof(s) of the Project. 4. The directory of the building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Project and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Project for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 6. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 8. Freight elevator(s) shall be available for use by all tenants in the building, subject to such reasonable scheduling as Landlord, in its discretion, shall deem appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move in and subsequent deliveries of bulky items, such as furniture, safes and similar items shall, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. and 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the building. 9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors, or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 11. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. 12. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the building's heating and air conditioning and to comply with any government energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. 13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the building. 14. Landlord reserves the right to exclude from the building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the building of any person. Landlord reserves the right to prevent access to the building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the building or by Landlord for noncompliance with this rule. F-1 31 16. Tenant shall not obtain for use on the Premises ice, drinking water, food, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such hours and under such regulations as may be fixed by Landlord. 17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 18. Tenant shall not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Project. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. 19. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof(s) or exterior walls of the building or Project. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 20. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 21. Tenant shall not install, maintain or operate upon the premises any vending machines without the written consent of Landlord. 22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 23. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgement, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 24. Tenant shall store all its trash and garbage within its premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 25. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectional purpose. No cooking shall be done or permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriter's Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted, provided that such equipment and use is in accordance with all applicable, federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Tenant shall not use in any space or in the public halls of the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the building or Project. 27. Without the written consent of Landlord, Tenant shall not use the name of the building or Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 28. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 29. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 30. Tenant's requirements will be attended to only upon appropriate application to the Project management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 31. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. 32. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. 33. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 34. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. F-2 32 EXHIBIT G PARKING RULES AND REGULATIONS The following rules and regulations shall govern use of the parking facilities which are appurtenant to the Project. 1. All claimed damage or loss must be reported and itemized in writing delivered to the Management Office within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord has the option to make repairs at its expense of any claimed damage within two business days after filing of any claim. In all court actions the burden of proof to establish a claim remains with Tenant. Court actions by Tenant for any claim must be filed within ninety days from date of parking in court of jurisdiction where a claimed loss occurred. Landlord is not responsible for damage by water, fire, or defective brakes, or parts, or for the act or omissions of others, or for articles left in the car. The total liability of Landlord is limited to $250.00 for all damages or loss to any car. Landlord is not responsible for loss of use. 2. Tenant shall not park or permit the parking of any vehicle under its company in any parking areas designated by Landlord as areas for parking by visitors to the Project. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or fourwheeled trucks. 3. Parking stickers or any other device or form of identification supplied by landlord as a condition of use of the Parking Facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. 4. No overnight or extended term storage of vehicles shall be permitted. 5. Vehicles must be parked entirely within painted stall lines of a single parking stall. 6. All directional signs and arrows must be observed. 7. The speed limit within all parking areas shall be 5 miles per hour. 8. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross-hatched areas; and (f) in such other areas as may be designated by Landlord or Landlord's Parking Operator. 9. Every parker is required to park and lock his own vehicle. All responsibility for damage to vehicles is assumed by the parker. 10. Loss or theft of parking identification devices from automobiles must be reported to the Management Office immediately, and a lost or stolen report must be filed by the customer at that time. Landlord has the right to exclude any car from the parking facilities that does not have an identification device. 11. Any parking identification devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution. 12. Lost or stolen devices found by the purchaser must be reported to the Management Office immediately to avoid confusion. 13. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 14. Parking Facility managers or attendants are not authorized to make or allow any exceptions to these Rules and Regulations. 15. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to any tenant or person and/or his agents or representatives who willfully refuse to comply with these Rules and Regulations and all unposted City, State or Federal ordinances, laws or agreements. 16. Landlord reserves the right to establish and change parking fees and to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the car to removal. G-1 33 EXHIBIT H HAZARDOUS MATERIALS THE FOLLOWING PROVISIONS DEALING WITH HAZARDOUS MATERIALS ARE MEANT TO BE IN ADDITION TO, AND NOT SUPERSEDE OR LIMIT, ANY OTHER PROVISIONS OF THIS LEASE WHICH MAY DEAL WITH THE SAME SUBJECT MATTER. (a) DEFINITION. "Hazardous Materials" shall mean any hazardous or toxic substance, material, or waste which is or becomes regulated by any local governmental authority, the State of California, or the United States Government, including, but not limited to, substances defined as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous wastes" in the Comprehensive Environmental Responses, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq; the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq; the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901, et seq; the California Health & Safety Code; and any law, ordinance, or regulation dealing with underground storage tanks; and in the regulations adopted, published, and/or promulgated pursuant to said laws, and in any other environmental law, regulation, or ordinance now existing or hereinafter enacted (hereinafter "Hazardous Materials Laws"). (b) USE AND REMOVAL. (1) Tenant hereby agrees that Tenant shall not use, generate, manufacture, refine, process, store, or dispose of on, under, or about the Premises or transport to or from the Premises any Hazardous Materials, except with the written consent of Landlord in Landlord's sole discretion and in full compliance with applicable Hazardous Materials Laws. Tenant further acknowledges that Tenant does not intend to use the Premises in the future for the purpose of generating, manufacturing, refining, producing, storing, handling, transferring, processing, or transporting of Hazardous Materials. (2) If at any time during the term of this Lease, Hazardous Materials are used, or placed by Tenant on the Premises or Hazardous Materials are discovered by Tenant on the Premises where no prior consent of Landlord was obtained or otherwise in violation of any Hazardous Materials Laws, or if any contamination of the Premises shall occur, Tenant, at Tenant's sole cost and expense, shall immediately remove such Hazardous Materials from the Premises or from the ground or groundwater underlying the Premises in accordance with requirements of the appropriate governmental entity. Furthermore, Tenant 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 Tenant's use of the Premises, including, without limitation, discharge of (appropriately treated) materials or wastes into and through any sanitary sewer serving the Premises. (3) Except for discharges into the sanitary sewer in strict accordance and conformity with all applicable Hazardous Materials Laws, Tenant shall cause any and all permitted Hazardous Materials removed from the Premises to be removed and transported solely by duly licensed haulers to duly licensed facilities for final disposal of such materials and wastes. Tenant shall in all respects handle, treat, deal with, and manage any and all Hazardous Materials in, on, under, or about the Premises in total conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding management of such Hazardous Materials. Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in or about the Premises nor enter into any settlement agreement, consent, decree, or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Premises without first notifying Landlord of Tenant's intention to do so and affording Landlord ample opportunity to appear, intervene, or otherwise appropriately assert and protect Landlord's interest with respect thereto. In addition to all other rights and remedies of Landlord hereunder, if such Hazardous Materials are not removed from the Premises or the ground or groundwater underlying the Premises by Tenant within fifteen (15) days after Landlord or Tenant discovers such Hazardous Materials, Landlord, at its sole discretion, may, but shall not be obligated to, pay to have the same removed, and Tenant shall reimburse Landlord within five (5) days of Landlord's demand for payment. (c) NOTICE. (1) 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 Hazardous Materials Laws; (ii) any claim made or threatened by any person against Tenant, or the Premises 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 or removed from the Premises, including any complaints, notices, warnings, or asserted violations in connection therewith, upon Tenant's receipt of actual knowledge of the above. Tenant shall also supply to Landlord as possible, and in any event within five (5) business days after Tenant first H-1 34 receives or sends the same, with copies of all claims, reports, complaints, notices, warnings, or asserted violations relating in any way to the Premises, or Tenant's use thereof. Tenant shall promptly deliver to Landlord copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. (2) Tenant acknowledges that Tenant has been informed that Section 25359.7 of the California Health and Safety Code provides that any tenant of real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath the real property shall, upon discovery by the tenant of the presence or suspected presence of a hazardous substance release, give notice of that condition to the owner of the real property. Failure of the tenant to provide written notice as required to the owner shall make the lease voidable at the discretion of the owner. The Health and Safety Code provides that if the tenant has actual knowledge of the presence of any hazardous substance release and knowingly or willingly fails to provide written notice as required by the owner, the tenant is liable for a civil penalty not to exceed $5,000.00 for each violation. (d) INDEMNIFICATION. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord, and each and any of Landlord's shareholders, partners, officers, directors, employees, agents, attorneys, successors, and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses, or expenses (including actual attorneys' fees and costs) or death of or injury to any person or damage to any property whatsoever, arising from or caused in whole or in part, directly, or indirectly, by (i) the presence in, on, under, or about the Premises or discharge in or from the Premises of any Hazardous Materials placed or discharged in, on, or under the Premises by Tenant or 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, or (ii) Tenant's failure to comply with any Hazardous Materials Laws. Tenant's obligation hereunder shall include, without limitation, and whether foreseeable or unforseeable, all costs of any required or necessary repair, cleanup, or detoxification or decontamination of the Premises and the preparation and implementation of any closure, remedial action, or other required plans in connection therewith. For purpose of the indemnity provisions hereof, any acts or omissions of Tenant, or by employees, agents, assignees, subtenant, concessionaire, contractors, or subcontractors of Tenant or others acting for on behalf of Tenant (whether or not they are negligent, intentional, willful, or unlawful) shall be strictly attributable to Tenant. (e) SURVIVAL. All representations, warranties, obligations, and indemnities with respect to Hazardous Materials shall survive the termination of this Lease. Section 10.2 WASTE MANAGEMENT REQUIREMENTS. Without limiting any other obligations of Tenant under this Lease. Tenant covenants and agrees to comply with all laws, rules, regulations, and guidelines now or hereafter made applicable to the Premises respecting the disposal of waste, trash, garbage, and other matter (liquid or solid), generated by Tenant, the disposal of which is not otherwise the express obligation of Landlord under this Lease, including, but not limited to, laws, rules, regulations, and guidelines respecting recycling and other forms of reclamation (all of which are herein collectively referred to as "Waste Management Requirements"). Tenant hereby covenants and agrees to comply with all rules and regulations established by Landlord to enable Landlord from time to time to comply with Waste Management Requirements applicable to Landlord (i) as owner of the Premises, and (ii) in performing Landlord's obligations under this Lease, if any. Tenant covenants and agrees to indemnify, defend, protect, and hold Landlord harmless from and against all liability (including costs, expenses, and attorneys' fees) that Landlord may sustain by reason of Tenant's breach of its obligations under this Section 10.2. Tenant obligations under this Section 10.2 shall survive the termination of this Lease. H-2 EX-10.17 8 EXHIBIT 10.17 1 EXHIBIT 10.17 AMENDMENT NO. 1 TO THAT CERTAIN LEASE DATED JULY 12, 1994, BY AND BETWEEN WEYERHAEUSER MORTGAGE COMPANY, A CALIFORNIA CORPORATION, AND FORT WYMAN, INC., A MICHIGAN CORPORATION, AS LANDLORD, AND STAC ELECTRONICS, A CALIFORNIA CORPORATION, AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 12626 HIGH BLUFF DRIVE, SUITE 370, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA. _______________________________________________________________________________ WITNESSETH: WHEREAS, Landlord and Tenant executed a lease under date of July 12, 1994, relating to the demised premises described in Exhibit "A" thereto; and WHEREAS, Landlord and Tenant now desire to amend said Lease to make certain agreed upon changes in said Lease; NOW, THEREFORE, to carry out the mutual desires of the parties thereto, it is hereby agreed that said Lease shall be hereby amended as of June 7, 1995 as follows: 1. The purposes of this Amendment is for Tenant to exercise its right of first refusal on Suite 120. 2. SECTION 1(d), PREMISES AREA: Shall be increased by approximately 3,042 rentable square feet for a total of approximately Seven Thousand Seven Hundred Seventy-One (7,771) Rentable Square Feet. 3. SECTION 1(f), TENANT'S PERCENTAGE: Shall be modified to reflect Thirteen and 42/100 Percent (13.42%). 4. SECTION 1(g), TERM OF LEASE: The terms of this Amendment shall commence on June 12, 1995. The expiration of the Lease shall remain unchanged and is March 5, 2000. 5. SECTION 1(h), BASE MONTHLY RENT: Shall be modified to reflect Nine Thousand Seven Hundred Thirteen and 75/100 Dollars ($9,713.75). 6. SECTION 1(I), TOTAL SECURITY DEPOSIT: Shall be increased to Nine Thousand Seven Hundred Thirteen and 75/100 Dollars ($9,713.75). 7. SECTION 1(o), PARKING: Shall be modified to reflect thirty-one (31) spaces, including three (3) covered and reserved, free of charge. 8. CONDITION OF PREMISES: Tenant shall accept the Premises in an "as is" condition. Alterations to space Tenant deems necessary shall be at Tenant's sole cost and only upon prior written approval of Landlord. The terms and conditions of the Work Letter Agreement in the Lease, as well as the Rules and Guidelines for contractors and the tenant improvement contract, and payment policies for the property are strictly adhered to. 9. ADDENDUM "1," BUILDING SIGNAGE: Paragraph 4, Building Signage, in Addendum "1" of the Lease shall be deleted in its entirety. 10. EXHIBIT "A-2," OUTLINE OF INCREASED PREMISES: Exhibit "A-2," showing the increased Premises, is attached hereto and by this reference made a part of the lease. The foregoing is hereby agreed to and accepted: "LANDLORD" "TENANT" WEYERHAEUSER MORTGAGE COMPANY, STAC ELECTRONICS, a California a California corporation and corporation FORT WYMAN, INC., a Michigan corporation By: /s/ (signature illegible) By: /s/ John R. Witzel --------------------------------- --------------------------------- Date: June 29, 1995 Date: June 16, 1995 ------------------------------- ------------------------------- By: --------------------------------- Date: ------------------------------- 2 EXHIBIT "A-2" [FLOOR PLAN] CORPORATE PLAZA II Floor 1 12626 High Bluff Drive EX-10.18 9 EXHIBIT 10.18 1 EXHIBIT 10.18 AMENDMENT NO. 2 TO THAT CERTAIN LEASE DATED JULY 12, 1994, BY AND BETWEEN WEYERHAEUSER MORTGAGE COMPANY, A CALIFORNIA CORPORATION, AND FORT WYMAN, INC., A MICHIGAN CORPORATION, AS LANDLORD, AND STAC ELECTRONICS, A CALIFORNIA CORPORATION, AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 12626 HIGH BLUFF DRIVE, SUITE 370, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA. WITNESSETH: WHEREAS, Landlord and Tenant executed a Lease under date of July 12, 1994, as well as Amendment No. 1 To The lease, relating to the demised premises shown in Exhibit A thereto; and WHEREAS, Landlord and Tenant now desire to amend said Lease and First Amendment To The Lease to make certain agreed upon changes in said Lease; NOW THEREFORE, to carry out the mutual desires of the parties thereto, it is hereby agreed that said Lease and First Amendment To The Lease shall be amended as of December 18, 1995 as follows: 1. The purpose of this Amendment is for Tenant to exercise its right of first refusal on Suite 250. 2. SECTION 1(d), PREMISES AREA: Premises area shall be increased by approximately 2,863 rentable square feet for a total of approximately Ten Thousand Six Hundred Thirty Four (10,634) rentable square feet. 3. SECTION 1(f), TENANT'S PERCENTAGE: Tenant's percentage shall be amended to reflect Eighteen and 45/100 Percent (18.45%). 4. SECTION 1(g), TERM OF THE LEASE: Terms as stated in this amendment shall commence February 5, 1996. The expiration of the lease, March 5, 2000, shall remain unchanged. 5. SECTION 1(h), BASE MONTHLY RENT: Monthly Base Rent shall be amended to reflect Thirteen Thousand Two Hundred Ninety Two and 50/100 Dollars ($13,292.50). 6. SECTION 1(l), TOTAL SECURITY DEPOSIT: Security Deposit shall be increased by $3,578.75, to a total of Thirteen Thousand Two Hundred Ninety Two and 50/100 Dollars ($13,292.50). The increase amount shall be due and payable prior to commencement of the Lease. 7. SECTION 1(O), PARKING: Shall be modified to reflect forty-three (43) spaces, including five (5) covered and reserved, free of charge. 8. CONDITION OF PREMISES: Tenant shall accept the premises in an "as is" condition. Alterations to space Tenant deems necessary shall be at Tenant's sole cost, shall conform to the current Building Standards and may proceed only upon prior written approval of Landlord. The terms and conditions of the Work Letter Agreement in the Lease, as well as the Rules and Guidelines for Contractors and the Tenant Improvement Contract and Payment Policies for the property are strictly adhered to. 9. EXHIBIT A, OUTLINE OF ADDITIONAL LEASED PREMISES: Exhibit A, showing the additional leased premises, is attached hereto and by this reference, made a part of the Lease. Except as modified herein, all other terms and conditions of the Lease between the parties above described shall continue in full force and effect. The foregoing is hereby agreed to and accepted: LANDLORD: TENANT: WEYERHAEUSER FINANCIAL INVESTMENTS, STAC ELECTRONICS, Inc., INC., a Nevada corporation, and FORT WYMAN, a California corporation INC., a Michigan corporation, tenants in common By: Weyerhaeuser Financial Investments, Inc., managing tenant in common By: /s/ Dorothy Forbes By: /s/ John R. Witzel -------------------------------- --------------------- Date: 2-10-96 Date: Feb. 2, 1996 ------------------------------ ------------------- 2 EXHIBIT A [FLOOR PLAN] 12626 High Bluff Drive, Suite 250 EX-11.1 10 EXHIBIT 11.1 1 EXHIBIT 11.1 STAC, INC. COMPUTATION OF LOSS PER SHARE (in thousands, except per share amounts)
Year Ended September 30, ------------------------------------------- 1996 1995 1994 ---------- ----------- ---------- Primary loss per share: Net income (loss) $ (1,675) $ 1,496 $ 333 Less preferred dividends 168 1,598 449 -------- -------- -------- Net loss available for common $ (1,843) $ (102) $ (116) shareholders ======== ======== ======== Common and common stock equivalent shares outstanding 30,068 25,391 24,643 Net loss per share, primary $ (.06) $ .00 $ .00 Fully diluted loss per share: Net income (loss) $ (1,675) $ 1,496 $ 333 Less preferred dividends 1,598 449 -------- ------- -------- Net loss available for common shareholders $ (1,675) $ (102) $ (116) ======== ======= ======== Common and common stock equivalent shares outstanding 30,585 25,391 24,643 Net loss per share, fully diluted $ (.05) $ .00 $ .00
EX-21.1 11 EXHIBIT 21.1 1 EXHIBIT 21.1 STAC, INC. SUBSIDIARIES OF REGISTRANT Hi/fn Inc. Stac Electronics (U.K.), Limited EX-23.1 12 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-47733, 33-50038, and 33-55462) of Stac, Inc. of our report dated October 25, 1996, appearing on page F-1 of this Form 10-K. PRICE WATERHOUSE LLP San Diego, California December 20, 1996. EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS SEP-30-1996 OCT-01-1995 SEP-30-1996 35,942 29,463 5,904 327 754 72,947 8,458 4,785 83,690 4,449 0 0 0 73,547 5,452 83,690 46,765 46,765 6,531 6,531 0 0 0 4,467 6,142 (1,675) 0 0 0 (1,675) (0.06) (0.05)
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