-----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, RsCW3PRrqC+SC1NdN1a5Q4z9srF1EI3Q9XBDujXivuC3NyER0ywQJwMA7vjUNlfU AdZoc1m9LFDMlwhW2CanvQ== 0000950135-01-503858.txt : 20020413 0000950135-01-503858.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950135-01-503858 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKS AUTOMATION INC CENTRAL INDEX KEY: 0000933974 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 043040660 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25434 FILM NUMBER: 1813260 BUSINESS ADDRESS: STREET 1: 15 ELIZABETH DR CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 9782622400 MAIL ADDRESS: STREET 1: 15 ELIZABETH DRIVE CITY: CHELMSBORO STATE: MA ZIP: 01824 10-K 1 b40853bae10-k.txt BROOKS AUTOMATION, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-25434 BROOKS AUTOMATION, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 04-3040660 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 15 ELIZABETH DRIVE, CHELMSFORD, MASSACHUSETTS 01824 (Address of Principal Executive Offices) (Zip Code)
978-262-2400 (Registrant's Telephone Number, Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE RIGHTS TO PURCHASE COMMON STOCK 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] The aggregate market value of the registrant's Common Stock, $0.01 par value, held by nonaffiliates of the registrant as of November 30, 2001, was $576,558,732.75 based on the closing price per share of $36.75 on that date on the Nasdaq Stock Market. As of November 30, 2001, 19,913,483 shares of the registrant's Common Stock, $0.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement involving the election of directors, which is expected to be filed within 120 days after the end of the registrant's fiscal year, are incorporated by reference in Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries such as the data storage and flat panel display manufacturing industries. Brooks has distinguished itself as a technology and market leader, particularly in the demanding cluster-tool vacuum-processing environment and in integrated factory automation software applications. The Company's offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the flow of resources in the factory from process tools to factory scheduling and dispatching. In 1998, the Company began an aggressive program of investment and acquisition. By the close of fiscal year 2000, Brooks had emerged as one of the leading suppliers of factory and tool automation solutions for semiconductor and original equipment manufacturers. During fiscal 2001, the Company continued its program of strategic investment and acquisitions designed to broaden the depth and breadth of its offerings and market position. INDUSTRY BACKGROUND Fabrication of semiconductors and flat panel displays requires a large number of complex process steps in which electrically insulating or conductive materials are deposited and etched into patterns on the surface of a substrate or wafer. A simplified production sequence consists of deposition, photolithography and etch processes. In deposition, one or more layers of a film of material are deposited on a substrate or wafer. Then, with photolithography, the desired circuit pattern is imaged on the deposited material. Finally, in the etch process, the material not covered with the pattern is selectively removed. Each deposition, photolithography or etch process requires the use of one or more process tools. This basic sequence is repeated up to 25 times for complex semiconductor devices. To become fully processed a bare silicon wafer will pass through as many as 400 or more process steps. State-of-the-art semiconductor manufacturing creates on-chip features 1,000 times narrower than a human hair, and it must control the dimensions of those features to within 10%. A fabrication facility, or "fab", contains hundreds of manufacturing tools. Wafer fabs process wafers in lots of 25. A flat panel display substrate may contain as few as two laptop computer displays, while a wafer may contain more than 500 semiconductor chips. One manufacturing facility could at any moment be processing wafers that will result in hundreds of different end products. The slightest drift or malfunction in any of the tools at any of the process steps can cause a process deviation. A manufacturing problem or deviation in a wafer fabrication plant can ruin an entire lot of 25 wafers, or multiple lots. One lot of 300mm (i.e. about 12 inches in diameter) wafers can be worth up to $7 million. As a result, semiconductor manufacturing has become and continues to be increasingly automated. Today, almost every aspect of processing includes automation, from material handling to tracking work-in-process to process control and scheduling. Factory and tool automation directly impacts factory performance. Factory performance, in turn, drives semiconductor manufacturers' ability to: - get to market first when product profitability is greatest; and - drive manufacturing costs down to remain competitive in the face of constant downward price pressure. TOOL AUTOMATION SYSTEMS Semiconductor and flat panel display substrates must be processed in ultra-clean environments. This means that manufacturing is either in a clean room at atmospheric pressure levels, a nitrogen purged atmospheric environment, or in a vacuum environment. Semiconductor and flat panel display process tools generally use vacuum environments for deposition and etch processes, and atmospheric environments for photolithography and other processes. Vacuum equipment is typically designed as cluster tools and atmospheric equipment is typically designed as in-line handling systems. Cluster tool handling systems typically link together multiple processes such as deposition, etch and heating/cooling of the substrate around a transfer robot located in a central vacuum chamber. In a cluster tool, a standard cassette of up to 25 wafers enters the vacuum environment through a vacuum cassette elevator load lock. The load lock is sealed and pumped to vacuum and then opened to the central wafer handling system. A central transfer robot then carries the wafers between the cassette and the different process and conditioning modules through the central vacuum chamber. After all the wafers have been processed within the cluster tool and returned to the cassette in the load lock, the load lock is sealed from the vacuum central chamber and vented to atmospheric pressure. The cassette of wafers is then removed from the cluster tool through the load lock. Vacuum cluster tools often employ two load locks, with the wafers from one load lock being actively transferred, conditioned and processed while wafers in the other load lock are being brought to or removed from vacuum conditions. In-line handling systems often link together multiple processes such as photo resist processing, using a transfer robot located on an atmospheric horizontal traverser. In these systems, the process modules are lined up rather than clustered around an automation handling system. Robotic traversers in these systems move substrates back and forth across the line of process modules. The in-line architecture is now emerging in the stripping, etch, cleaning and chemical mechanical polishing process markets. Some in-line architectures have their Process Modules loaded directly by an atmospheric robot (chemical mechanical polishing ("CMP"), track). Others utilize a transport mechanism in a vacuum load lock to load the process module (etch, rapid thermal processing ("RTP"), ashing). FACTORY INTERFACE SOLUTIONS Semiconductor manufacturers with 300mm, as well as advanced 200mm, projects utilize mini-environment technology for their factories. Mini-environment technology permits a factory to cost-effectively maintain the wafers in an environment that is 1,000 times cleaner than one that is typically found in a surgical operating room. The interface between a mini-environment that surrounds a tool and the outside factory is a critical element of a factory's total automation solution. Material handling automation includes sorters (moving wafers within and between carriers), interbay (moving wafer carriers between manufacturing areas), intrabay (moving wafer carriers from tool to tool within a manufacturing area) and tool-level automation. Tool-level automation uses robot arms or tracks to handle wafers or cassettes of wafers between lot box and processing chamber, or between consecutive processing chambers. FACTORY AUTOMATION SOLUTIONS Driven by increased global competition, shorter product lifecycles, and downward price pressures, semiconductor manufacturers are turning their attention to reducing manufacturing costs by improving the operational efficiencies of their manufacturing processes. This is evidenced by the continued investment, even in a down market, in 300mm manufacturing facilities on the basis of cost reduction. It is also supported by the strong push for more and better-advanced process control, equipment performance tracking and other optimization and manufacturing control applications. Semiconductor manufacturers require factory automation systems that document, control and report on the movement of material through the automated factory. To achieve this requires a high degree of integration of the many automation components. For example, the factory systems must simultaneously setup and run processing equipment automatically, route work-in-process dynamically based on the current state of the factory, collect process data, modify process variables, monitor semiconductor processing equipment performance and control the dispatching of work-in-process, to keep the factory at acceptable performance levels. As automation requirements have grown, semiconductor manufacturers' automation solutions have changed from add-on systems that have evolved over time, to full solutions that are specified, in detail, at the beginning of the factory planning process. The increasing requirement for automation makes it critical to semiconductor manufacturers that the automation systems they select work together in an integrated fashion at the time of deployment. 2 Semiconductor and flat panel display manufacturers use a wide variety of hardware and software systems to automate and control their operations. To improve factory performance, they use factory automation systems. Almost all fabs apply statistical process control to their processes and equipment. Manufacturing execution system ("MES") applications coordinate and track the activities of manufacturing resources, including equipment, material, operators, engineers and software applications. Many fabs use sensors and software applications to monitor equipment performance, modify process parameters automatically, provide automated notification of out-of-control conditions and supply on-line help for troubleshooting. In addition, many fabs use automated tracking systems to collect large amounts of data about process and product conditions, equipment maintenance and operation history, lot production history and yield results. Engineers use applied statistical tools to analyze large volumes of data from multiple sources in order to identify and correct problems that negatively impact yields, equipment utilization and throughput. Finally, capacity planning and scheduling solutions are used to manage all the constraints in the factory, from limited resources during shift changes to factors effecting machine efficiency. These solutions help increase throughput, improve utilization of resources and reduce in-process inventory. PRODUCTS TOOL AUTOMATION SYSTEMS Brooks provides vacuum and atmospheric tool automation systems for the semiconductor, MEMS (Micro-electronic Machines Systems), opto-electronic, flat panel display and data storage markets. Brooks has developed comprehensive product lines that encompass automation modules, handling systems and integrated software and controls. Brooks uses a common architectural foundation in the design and production of systems, robots and modules. Shared technologies and common software controls enable Brooks to respond to changing industry demands, such as processing larger diameter 300mm semiconductor wafers and the larger, fourth generation flat panel display substrates. Brooks provides components to customers who build their own systems and integrated systems to those customers who do not. FACTORY INTERFACE SOLUTIONS Brooks provides mini-environment and factory interface solutions that support 200mm Standard Mechanical Interface Facilities ("SMIF"), as well as solutions for 300mm factories, which utilize Brooks' Front Opening Unified Pod ("FOUP") technology. Brooks' Equipment Front-End Modules ("EFEMs") are compact interface solutions that provide the equipment supplier with an integrated system that consists of a mini-environment, load port(s), atmospheric robot(s), tool control and software interface modules. Brooks offers multi-cassette sorting systems. These sorters are often used for the random sampling of wafers for statistical process control routines, which, when coupled with metrology inspection, help assure the quality of the process tool and the materials used in the fabrication process. Brooks also provides advanced lot tracking that enables semiconductor manufacturers to monitor the exact location of every wafer in the factory. Brooks believes that its factory interface solutions enhance return on investment in new fabs, retrofit projects, as well as in process tools, by providing integrated automation solutions to manage the complex logistics of advanced semiconductor factories. FACTORY AUTOMATION SOLUTIONS Electronics manufacturing often requires software systems for decision support (reporting, planning, scheduling, dispatching, simulation, process development), tracking/management (work in process ("WIP"), durables (i.e. reticles and carriers), equipment, operators, recipes, maintenance, inventory), equipment or cell control (process equipment, measurement equipment, material handling systems, storage systems) and analysis (statistical process control, advanced process control, engineering data analysis, yield management, equipment performance tracking). As a result of the complexity of their processes and intolerance of even minor deviations from those processes, semiconductor fabs lead the way in driving the requirements for 3 manufacturing automation software systems, often referred to as computer integrated manufacturing ("CIM") system. The heart of this system is the MES. Brooks offers a CIM solution that provides a unifying framework for factory automation. Brooks' MES software provides decision support and WIP tracking and management either stand-alone or as part of the CIM solution. Brooks' equipment integration products connect the manufacturing equipment to the advanced process control, factory automation, and other control applications. Brooks' solutions provide integrated applications for material control and durables management, WIP tracking and process optimization, maintenance management and equipment performance tracking, advanced process control and process optimization, factory scheduling and real-time dispatching, recipe management and engineering data collection, and engineering data analysis and statistical process control. These applications integrate, coordinate and track the activities of manufacturing resources, including equipment, material, operators, engineers and software applications. Brooks' solutions may be both process-specific and facility-wide. Brooks may deliver these solutions as a stand-alone product or as part of an integrated, CIM solution including systems integration services. Brooks' offerings address the automation software requirements for hi-tech manufacturing markets including semiconductor fab assembly and test areas, liquid crystal display, or LCD, MEMS, opto-electronics and data storage markets. The following table lists the Company's primary product offerings within each of the markets it serves:
SEGMENT PRODUCT LINES - ------- ------------- TOOL AUTOMATION SYSTEMS Vacuum Intra-Tool Automation Central Wafer Handling Systems Transfer Robots Thermal Conditioning Modules (Cooling) Cassette Elevator Load Locks Aligners Atmospheric Intra-Tool Automation Wafer Handling Systems Transfer Robots Thermal Conditioning Modules (Cooling) Aligners Flat Panel Display Products Indexers Substrate Handling Systems Transfer Robots Cassette Elevator Load Locks Tool Communications Software 200mm/300mm Communications Software 200mm/300mm Test Software e-Diagnostics Tool Interface Software Tool Automation Software Material Handling Control Software Cluster Tool Control Software EFEM Control Software Equipment Controllers Integration and Consulting Solutions Advanced Process Control Software APC Foundation Software Patterns -- Fault Detection & Classification (FDC) Software Run-to-Run Software
4
SEGMENT PRODUCT LINES - ------- ------------- FACTORY INTERFACE SOLUTIONS Factory Interfaces and Wafer Sorters Standard Mechanical Interfaces (SMIF) 300mm Front Opening Unified Pod (FOUP) Interfaces Mini-environments Pressure and Flow Controllers Equipment Front End Modules (EFEM) Sorters, Indexers Carrier Tracking Systems FACTORY AUTOMATION SOLUTIONS CIM solutions FABready Suite for 300mm, FABready Suite for LCD Manufacturing Execution Software ("MES") FACTORYworks Reticle Management and Lithography PhotoStation, ReticleTrax Automation Software Scheduling and Dispatching Advanced Productivity Family Material Control and Tracking CLASS MCS Equipment and Cell Control STATIONworks, CELLworks Engineering Data Analysis RS/Series, Cornerstone Maintenance Management Xsite Equipment Performance and Monitoring SEARAMS, Sentinel, iConnect Process Development Starfire Statistical Process Control SPACE inside Brooks Advanced Process Control Patterns, ARRC, SMC, APCbuilder
CUSTOMERS Brooks' customers for tool automation systems are primarily original equipment manufacturers ("OEMs") and semiconductor manufacturers who are constructing new and/or retrofitting existing vacuum and atmospheric automation process equipment or developing advanced process equipment for internal use. Brooks' customers for factory automation software and factory interface solutions are primarily semiconductor manufacturers. The Company's customers are primarily located in the United States, Japan, South Korea, Europe, Taiwan and Southeast Asia. Brooks markets its developing family of atmospheric central wafer handling equipment to its existing customers in the vacuum and flat panel display markets and to potential new customers. Relatively few customers account for a substantial portion of Brooks' revenues. In fiscal 2000 and fiscal 1999, Lam Research Corporation ("Lam") was the Company's largest customer. In fiscal 2001, Novellus Systems, Inc. ("Novellus") was the Company's largest customer. Sales to the Company's ten largest customers, Novellus and Lam, as a percentage of total sales, are as follows:
YEAR ENDED SEPTEMBER 30, ------------------------- 2001 2000 1999 ----- ----- ----- Ten largest customers 37% 43% 52% Novellus Systems, Inc. 10% 7% 9% Lam Research Corporation 7% 11% 12%
A reduction or delay in orders from Novellus, Lam or other significant customers could have a material adverse effect on Brooks' results of operations. See Note 11, "Segment and Geographic Information," of the consolidated financial statements for further discussion of the Company's sales by geographic region and revenues, income and assets by financial reporting segment. 5 Brooks derives a significant amount of its total revenues from direct foreign sales. Revenues outside the United States were approximately 50%, 48% and 43% of total revenues for the years ended September 30, 2001, 2000 and 1999, respectively. The Company expects foreign revenues to continue to represent a significant percentage of total revenues in the foreseeable future. Brooks cannot guarantee that geographical revenue rates in the foreseeable future will be comparable to those achieved in recent years. See "Factors That May Affect Future Results -- Brooks' international business operations expose it to a number of difficulties in coordinating its activities abroad and in dealing with multiple regulatory environments" for a discussion of additional factors which could adversely affect foreign revenues." MARKETING, SALES AND CUSTOMER SUPPORT Brooks markets and sells its tool and factory automation hardware and software solutions for factory performance optimization in the United States, Europe, Japan, South Korea, Southeast Asia and Taiwan through its direct sales and marketing organization. The selling process for Brooks' products is often multilevel, involving a team comprised of individuals from sales, marketing, engineering, operations and senior management. Each significant customer is assigned a team that engages the customer at different organization levels to provide planning and product customization and to assure open communication and support. Brooks also utilizes a network of value-added integration partners to provide implementation and integration services for its factory automation software products. The Company's marketing activities also include participation in trade shows, publication of articles in trade journals, seminars, participation in industry forums and distribution of sales literature. To enhance this communication and support, particularly with its international customers, Brooks maintains technology and implementation centers in the United States, British Columbia, Japan, South Korea, Taiwan, Singapore, Malaysia, the United Kingdom and Germany. These facilities, together with Brooks' headquarters, maintain demonstration equipment for customers to evaluate. Customers are also encouraged to discuss the features and applications of Brooks' demonstration equipment with Brooks' engineers located at these facilities. The Company maintains a number of regional sales and service centers throughout the world. In 1998, Brooks developed a new sales and marketing tool, a process tool throughput simulator, to enable the evaluation of various wafer handling system configurations to identify the preferred tool configuration for a specific application. This tool simulates the movement of wafers with execution times, scheduling algorithms, and flow sequences similar to those of actual process tools and outputs this information visually. This tool is capable of comparing multiple tool configurations simultaneously for preferred fit comparisons. Brooks provides support to its customers with: - Telephone technical support access 24 hours a day, 365 days a year; - Direct training programs; and - Operating manuals and other technical support information for Brooks' products. The Company maintains spare parts inventories in most of its locations to enable its personnel to serve Brooks' customers and repair their products more efficiently. COMPETITION The semiconductor and flat panel display process equipment manufacturing industries are highly competitive and characterized by continual change and improvements in technology. Although other independent companies sell vacuum and atmospheric wafer and flat panel display substrate handling automation systems and vacuum transfer robots to original equipment manufacturers, Brooks believes that its primary competition is from the larger, integrated semiconductor and flat panel display original equipment manufacturers that satisfy their substrate handling needs in-house rather than by purchasing handling systems or modules from an independent source, such as Brooks. Such original equipment manufacturers comprise the majority of Brooks' current and potential customers in this segment. Many of the companies in these 6 industries have significantly greater research and development, clean room manufacturing, marketing and financial resources than Brooks. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules. Brooks believes its customers will only purchase Brooks' products if Brooks can demonstrate improved product performance, as measured by throughput, reliability, contamination control and accuracy, at an acceptable price. Brooks believes that it competes favorably with original equipment manufacturers and other independent suppliers with respect to all of these factors. However, Brooks cannot guarantee that it will be successful in selling its products to original equipment manufacturers that currently satisfy their wafer and flat panel handling needs in-house or from other independent suppliers, regardless of the performance or the price of Brooks' products. Brooks' sale of its products for the flat panel display process equipment market is heavily dependent upon its penetration of the Japanese market. Brooks continues to expand its presence in the Japanese semiconductor process equipment market. In addressing the Japanese markets, Brooks may be at a competitive disadvantage to Japanese suppliers. Brooks believes that the competitive factors in the factory interface solutions market are technical and technological capabilities, reliability, price/performance, ease of integration and global sales and support capability. Brooks believes that its solutions compete favorably with respect to all these factors. In this market, Brooks encounters direct competition from Asyst, Rorze, Fortrend, Newport, TDK, Yasakawa and Hirata. Some of these competitors have extensive engineering, manufacturing and marketing capabilities. Brooks believes that the primary competitive factors in the end-user market for factory automation software and process control solutions software are product functionality, degree of integration, price/performance, ease of implementation and installation, hardware and software platform compatibility, costs to support and maintain, vendor reputation and financial stability. Brooks believes its products currently compete favorably with other systems on the primary factors listed above. Brooks also believes that the relative importance of these competitive factors may change over time. Brooks experiences direct competition in the semiconductor factory automation market industry from various competitors, including Applied Materials-Consilium, IBM, Si-view, Compaq, TRW, Camstar and numerous small independent software companies. RESEARCH AND DEVELOPMENT Brooks' research and development efforts are focused on developing new products for the semiconductor, data storage and flat panel display process equipment industries and further enhancing the functionality, degree of integration, reliability and performance of existing products. Brooks' engineering, marketing, operations and management personnel have developed close collaborative relationships with many of their counterparts in customer organizations and have used these relationships to identify market demands and target Brooks' research and development to meet those demands. Brooks' current research and development efforts include the continued development and enhancement of Brooks' semiconductor and flat panel display products, including Gemini Express vacuum central wafer handling systems and modules, fourth generation flat panel display substrate handling systems and modules, 300mm loadport modules, integrated equipment front-end modules, atmospheric handling systems and modules, manufacturing execution system, station control software, advanced tool control solutions, advanced process control solutions, factory scheduling and dispatching solutions and material handling control software. Furthermore, the Company is investing in a common information systems framework to provide ease of integration across these applications. The Company also maintains relationships with integrated circuit manufacturers and equipment suppliers to define hardware and software solutions for equipment front-end automation, contamination control, logistic management, material tracking and equipment integration. MANUFACTURING Brooks' manufacturing operations consist primarily of product assembly, integration, and testing. Brooks has adopted stringent quality assurance procedures that include standard design practices, component selection procedures, vendor control procedures and comprehensive reliability testing and analysis to assure 7 the performance of its products. The Company's facilities in Chelmsford, Massachusetts; Jena, Germany; Kiheung, Korea and Livingston, Scotland are ISO 9001 certified. Brooks employs a just-in-time manufacturing strategy for a large portion of its manufacturing process. Brooks believes that this strategy, coupled with the outsourcing of non-critical subassemblies, reduces fixed operating costs, improves working capital efficiency, reduces manufacturing cycle times and improves flexibility to rapidly adjust its production capacities. While Brooks often uses single source suppliers for certain key components and common assemblies to achieve quality control and the benefits of economies of scale, Brooks believes that these parts and materials are readily available from other supply sources. Brooks also believes that its software development and manufacturing facilities are more than adequate to service foreseeable needs. PATENTS AND PROPRIETARY RIGHTS Brooks relies upon trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing agreements to protect its technology. Due to the rapid technological change that characterizes the semiconductor and flat panel display process equipment industries, Brooks believes that the improvement of existing technology, reliance upon trade secrets and unpatented proprietary know-how and the development of new products may be more important than patent protection in establishing and maintaining a competitive advantage. To protect trade secrets and know-how, it is Brooks' policy to require all technical and management personnel to enter into nondisclosure agreements. Brooks cannot guarantee that these efforts will meaningfully protect its trade secrets. Brooks has obtained patents and will continue to make efforts to obtain patents, when available, in connection with its product development program. Brooks cannot guarantee that any patent obtained will provide protection or be of commercial benefit to Brooks. Despite these efforts, others may independently develop substantially equivalent proprietary information and techniques. As of September 30, 2001, Brooks had obtained 116 United States patents and had 34 United States patent applications pending on its behalf. In addition, Brooks had obtained 152 foreign patents and had 199 foreign patent applications pending on its behalf. Brooks' United States patents expire at various times from May 2004 to July 2019. Brooks cannot guarantee that its pending patent applications or any future applications will be approved, or that any patents will not be challenged by third parties. Others may have filed and in the future may file patent applications that are similar or identical to those of Brooks. These patent applications may have priority over patent applications filed by Brooks. There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor related industries. Brooks has in the past been, and may in the future be, notified that it may be infringing intellectual property rights possessed by other third parties. Any patent litigation would be costly and could divert the efforts and attention of Brooks' management and technical personnel, which could have a material adverse effect on Brooks' business, financial condition and results of operations. Brooks cannot guarantee that infringement claims by third parties or other claims for indemnification by customers or end users of Brooks' products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not materially and adversely affect Brooks' business, financial condition and results of operations. If any such claims are asserted against Brooks' intellectual property rights, the Company may seek to enter into a royalty or licensing arrangement. Brooks cannot guarantee, however, that a license will be available on reasonable terms or at all. Brooks could decide in the alternative to resort to litigation to challenge such claims or to design around the patented technology. Such actions could be costly and could divert the efforts and attention of Brooks' management and technical personnel, which could materially and adversely affect Brooks' business, financial condition and results of operations. Brooks had received notice from General Signal Corporation alleging infringement of patents then owned by General Signal, relating to cluster tool architecture, by certain of Brooks' products. The notification advised Brooks that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not 8 verified, these five patents would appear to be the patents referred to by General Signal in its prior notice to Brooks. Applied Materials has not contacted Brooks regarding these patents. On October 10, 2001, the United States Court of Appeals for the Federal Circuit ("CAFC") issued an order in Asyst Technologies, Inc. v. Empak, Inc., and Emtrak, Inc., Jenoptik AG, Jenoptik Infab, Inc., Jenoptik GMBH and Infab U.S. Operations, Inc,. and Meissner & Wurst (the "Asyst litigation"), that may ultimately affect certain products sold by Brooks. The product that may be affected is a transport system known as IridNet, which was acquired by Brooks as part of the purchase of the assets of the Infab division of Jenoptik AG on September 30, 1999. Asyst had filed suit against Jenoptik AG and other parties (collectively the "defendants") in the Northern District of California charging the defendants with infringing Asyst's U.S. Patent Nos. 4,974,166 and 5,097,421. The District Court granted certain motions for summary judgment in favor of the defendants and Asyst appealed. The order from the CAFC reversed the grant of summary judgment and remanded the case to the District Court for further proceedings regarding claim construction, infringement and invalidity of the Asyst patents. Brooks has received notice that Asyst may amend its complaint to name Brooks as an additional defendant. Based on Brooks' investigation of Asyst's allegations, Brooks does not believe it is infringing any claims of Asyst's patents. Brooks intends to continue to support Jenoptik to argue vigorously, among other things, the position that the IridNet system does not infringe the Asyst patents. If Asyst prevails in its case, Asyst may seek to prohibit Brooks from developing, marketing and using the IridNet product without a license. Brooks cannot guarantee that a license will be available to it on reasonable terms, if at all. If a license from Asyst is not available Brooks could be forced to incur substantial costs to reengineer the IridNet product, which could diminish its value. In any case, Brooks may face litigation with Asyst. Jenoptik has indemnified Brooks for losses Brooks may incur in this action. BACKLOG Backlog for Brooks' products as of September 30, 2001, totaled $102.7 million. Backlog consists of purchase orders for which a customer has scheduled delivery within the next 12 months. Backlog for the Company's tool automation systems segment, factory interface solutions segment and factory automation solutions segment was $37.4 million, $24.5 million and $40.8 million, respectively, at September 30, 2001. Orders included in the backlog may be cancelled or rescheduled by customers without significant penalty. Backlog as of any particular date should not be relied upon as indicative of Brooks' revenues for any future period. A substantial percentage of current business generates no backlog because the Company delivers its products and services in the same period in which the order is received. EMPLOYEES At September 30, 2001, Brooks had approximately 1,900 employees. Brooks believes its future success will depend in large part on its ability to attract and retain highly skilled employees. Approximately 140 employees in the Company's Jena, Germany facility are covered by a collective bargaining agreement. Brooks considers its relationships with its employees to be good. 9 ITEM 2. PROPERTIES Brooks corporate headquarters and primary manufacturing facility is located in two buildings, comprising the Brooks campus, in Chelmsford, Massachusetts, which the Company purchased in January 2001. This purchase included a third building located at the same campus. The Company currently leases the third building to an unrelated party. The term of that lease concludes in November 2002. Prior to its purchase, the Company had leased its facilities in Chelmsford. Brooks maintains additional manufacturing facilities which are described in the table below:
SQUARE FOOTAGE LOCATION FUNCTIONS (APPROX.) LEASE EXPIRATION - -------- --------- -------------- ---------------- Chelmsford, Massachusetts Corporate headquarters, 131,000 Owned manufacturing, training, software development Chelmsford, Massachusetts Manufacturing, R&D-hardware and 80,000 Owned software Sylmar, California Manufacturing, R&D hardware 67,000 September 2011 Salt Lake City, Utah Software development, training, 45,900 September 2006 systems Richmond, Canada Manufacturing, training 41,000 October 2002 Burbank, California Manufacturing, sales and support, 41,000 January 2002 R&D-hardware Tewksbury, Massachusetts Manufacturing, R&D-hardware 35,100 December 2005 Kiheung, Korea Manufacturing, R&D hardware 28,400 September 2003 Jena, Germany Manufacturing 22,000 December 2002 Phoenix, Arizona Manufacturing, R&D hardware and 19,500 Owned software San Jose, California Manufacturing, R&D-hardware and 15,000 Month-to-month software Colorado Springs, Colorado Manufacturing, training, 14,000 April 2004 R&D-hardware and software Tempe, Arizona Manufacturing 10,000 January 2002
The Company's tool automation systems and factory interface solutions segments utilize the manufacturing facilities in Massachusetts, Arizona, California, Colorado, Germany, Korea and Canada. The Company's factory automation solutions segment utilizes the manufacturing facilities in Arizona, Utah, and Chelmsford. Brooks maintains additional sales and support service offices in Florida, Indiana, Massachusetts, Michigan, New Mexico, New York, Oregon, Pennsylvania, Texas, France, Germany, Malaysia, Singapore, Japan, South Korea, Taiwan, China, and the United Kingdom. Training is also provided at the majority of these sites. The sales, service and training locations serve all of the Company's segments. The Company is in the process of renegotiating its lease in San Jose. The operations in the Burbank facility are expected to relocate to Sylmar. The Tempe facility operations are transferring to Valencia, California, the facility occupied by General Precision Inc., which the Company acquired on October 5, 2001, upon the expiration of the Tempe lease. ITEM 3. LEGAL PROCEEDINGS Brooks is not a party to any material pending legal proceedings. See "Patents and Proprietary Rights," in Part I, Item 1, "Business," for a description of certain potential patent disputes. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended September 30, 2001, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the Nasdaq National Market under the symbol "BRKS". The following table sets forth, for the periods indicated, the high and low close prices per share of the Company's common stock, as reported by the Nasdaq National Market:
HIGH LOW ------ ------ Fiscal year ended September 30, 2001 First quarter $31.25 $20.25 Second quarter $44.39 $27.56 Third quarter $62.61 $35.45 Fourth quarter $52.25 $26.59 Fiscal year ended September 30, 2000 First quarter $34.25 $16.69 Second quarter $83.25 $29.75 Third quarter $91.88 $37.00 Fourth quarter $69.38 $29.63
NUMBER OF HOLDERS As of November 28, 2001, there were 364 holders on record of the Company's Common Stock. DIVIDEND POLICY Other than dividends paid by one of our subsidiaries prior to its acquisition by Brooks, Brooks has never paid or declared any cash dividends on its capital stock and does not plan to pay any cash dividends in the foreseeable future. Brooks' current policy is to retain all of its earnings to finance future growth. ISSUANCE OF UNREGISTERED COMMON STOCK On February 16, 2001, the Company acquired SEMY Engineering, Inc. in exchange for cash and 73,243 shares of Brooks common stock. The common stock issued in this transaction was sold in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. The shares issued in this transaction have been registered pursuant to an effective registration statement on Form S-3. On May 15, 2001, the Company acquired SimCon N.V. in exchange for cash and 13,741 shares of Brooks common stock. Under the acquisition agreement, Brooks is also obligated to make a future payment of Brooks common stock worth $750,000 on May 15, 2002. The common stock issued and to be issued in the future in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering and Regulation S promulgated thereunder. The shares issued in this transaction have been registered pursuant to an effective registration statement on Form S-3. On June 25, 2001, the Company completed the acquisition of CCS Technology, Inc. in exchange for cash and 78,475 shares of Brooks common stock. The common stock issued in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. The shares issued in this transaction have been registered pursuant to an effective registration statement on Form S-3. On June 26, 2001, the Company completed the acquisition of KLA-Tencor, Inc.'s e-Diagnostics product business in exchange for a note payable and 331,153 shares of Brooks common stock. At the option of Brooks, the note payable may be paid in cash or in an equivalent amount of Brooks common stock. There is also the 11 potential for additional purchase consideration of up to $8.0 million in the aggregate, contingent upon meeting certain performance objectives. At the option of Brooks, any additional purchase price consideration may be paid in an equivalent amount of Brooks common stock. The common stock issued and that may be issued in the future in this transaction was sold in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. The shares issued in this transaction have been registered pursuant to an effective registration statement on Form S-3. On July 12, 2001, the Company completed the acquisition of Progressive Technologies, Inc. in exchange for 715,004 shares of Brooks common stock. The common stock issued in this transaction was sold in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. The shares issued in this transaction have been registered pursuant to a registration statement on Form S-3 which has not been declared effective as of the date of this report. 12 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this report.
YEAR ENDED SEPTEMBER 30, 2001(4) 2000(1)(2) 1999(1)(3) 1998(1) 1997(1) - ------------------------ -------- ---------- ----------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues $381,716 $337,184 $122,957 $123,459 $133,827 Gross profit $152,384 $160,725 $ 55,152 $ 37,280 $ 59,739 Income (loss) from operations $(43,904) $ 20,084 $(11,822) $(29,190) $ (1,362) Income (loss) before income taxes and minority interests $(36,523) $ 28,444 $(10,448) $(27,917) $ (2,857) Net income (loss) $(29,660) $ 15,109 $ (9,534) $(23,268) $ (3,324) Accretion and dividends on preferred stock $ 90 $ 120 $ 774 $ 1,540 $ 1,125 Net income (loss) attributable to common stockholders $(29,750) $ 14,989 $(10,308) $(24,808) $ (4,449) Basic earnings (loss) per share $ (1.65) $ 0.96 $ (0.89) $ (2.32) $ (0.54) Diluted earnings (loss) per share $ (1.65) $ 0.88 $ (0.89) $ (2.32) $ (0.54) Shares used in computing basic earnings (loss) per share 18,015 15,661 11,542 10,687 8,230 Shares used in computing diluted earnings (loss) per share 18,015 17,192 11,542 10,687 8,230
AS OF SEPTEMBER 30, 2001 2000(1) 1999(1) 1998(1) 1997(1) - ------------------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total assets $703,831 $519,786 $197,300 $160,143 $181,967 Working capital $288,036 $306,836 $106,803 $105,210 $120,067 Notes payable and revolving credit facilities $ 17,122 $ 16,350 $ 6,183 $ 4,717 $ 4,070 Current portion of long-term debt and capital lease obligations $ 392 $ 524 $ 544 $ 523 $ 1,379 Convertible subordinated notes $175,000 $ -- $ -- $ -- $ -- Long-term debt and capital lease obligations (less current portion) and senior subordinated note $ 31 $ 332 $ 804 $ 9,118 $ 6,264 Redeemable convertible preferred stock $ -- $ 2,601 $ 2,481 $ 5,923 $ 15,270 Members' capital $ -- $ -- $ 930 $ 1,134 $ 195 Stockholders' equity $424,169 $415,284 $137,913 $118,156 $129,963
FIRST SECOND THIRD FOURTH YEAR ENDED SEPTEMBER 30, 2001 QUARTER(1) QUARTER(1) QUARTER(1) QUARTER - ----------------------------- ---------- ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues $111,391 $111,987 $96,814 $ 61,524 Gross profit $ 50,619 $ 48,866 $45,068 $ 7,831 Net income (loss) $ 5,515 $ (2,592) $ 518 $(33,101) Net income (loss) attributable to common stockholders $ 5,485 $ (2,622) $ 488 $(33,101) Diluted earnings (loss) per share $ 0.30 $ (0.14) $ 0.03 $ (1.76)
13
FIRST SECOND THIRD FOURTH YEAR ENDED SEPTEMBER 30, 2000 QUARTER(1) QUARTER(1) QUARTER(1) QUARTER(1) - ----------------------------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues $57,632 $83,543 $92,877 $103,132 Gross profit $28,588 $38,880 $43,315 $ 49,942 Net income $ 3,434 $ 2,427 $ 3,322 $ 5,926 Net income attributable to common stockholders $ 3,404 $ 2,397 $ 3,292 $ 5,896 Diluted earnings per share $ 0.24 $ 0.15 $ 0.17 $ 0.31
- --------------- (1) Amounts have been restated to reflect the acquisition of Progressive Technologies, Inc. in a pooling of interests transaction effective July 12, 2001. (2) Amounts include results of operations of the Infab Division of Jenoptik AG (acquired September 30, 1999); Auto-Soft Corporation and AutoSimulations, Inc. (acquired January 6, 2000) and MiTeX Solutions (acquired June 23, 2000) for the periods subsequent to their respective acquisitions. (3) Amounts include results of operations of Domain Manufacturing Corporation (acquired June 30, 1999) and Hanyon Technology, Inc. (acquired April 21, 1999) for the periods subsequent to their respective acquisitions. (4) Amounts include results of operations of SEMY Engineering, Inc. (acquired February 16, 2001), the KLA e-Diagnostics product business (acquired June 26, 2001), CCS Technology, Inc. (acquired June 25, 2001) and SimCon N.V. (acquired May 15, 2001) for the periods subsequent to their respective acquisitions. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Annual Report on Form 10-K constitute "forward-looking statements" which involve known risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Brooks to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include the factors that may affect future results set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations, which is included in this report. Precautionary statements made herein should be read as being applicable to all related forward-looking statements whenever they appear in this report. OVERVIEW Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier of integrated tool and factory automation solutions for the global semiconductor and related industries, such as the data storage and flat panel display manufacturing industries. Brooks has distinguished itself as a technology and market leader, particularly in the demanding cluster-tool vacuum-processing environment and in integrated factory automation software applications. The Company's offerings have grown from individual robots used to transfer semiconductor wafers in advanced production equipment to fully integrated automation solutions that control the flow of resources in the factory from process tools to factory scheduling and dispatching. In 1998, the Company began an aggressive program of investment and acquisition. By the close of fiscal year 2000, Brooks had emerged as one of the leading suppliers of factory and tool automation solutions for semiconductor and original equipment manufacturers. During the fiscal year 2001, the Company continued its program of strategic investment and acquisitions designed to broaden the depth and breadth of its offerings and market position. The Company's revenues are generally distributed equally between the United States and foreign countries. The Company's foreign sales have occurred primarily in Europe, Japan, Korea, Taiwan and Singapore. BASIS OF PRESENTATION On July 12, 2001, the Company acquired Progressive Technologies, Inc. ("PTI") in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001. Accordingly, the Company's consolidated financial statements and notes thereto have been restated to include the financial position and results of operations of PTI for all periods prior to the acquisition. PTI is engaged in the development, production and distribution of air-flow regulation systems for clean room and process equipment in the semiconductor industry. Prior to its acquisition by the Company, PTI's fiscal year-end was December 31. Accordingly, the Company's consolidated balance sheet as of September 30, 2000, includes PTI's balance sheet as of December 31, 2000, and the Company's consolidated statements of operations for the years ended September 30, 2000 and 1999 include PTI's results of operations for the years ended December 31, 2000 and 1999, respectively. As a result of conforming dissimilar year-ends, PTI's results of operations for the three months ended December 31, 2000, are included in both of the Company's fiscal years 2001 and 2000. An amount equal to PTI's net income attributable to common stockholders for the three months ended December 31, 2000 was eliminated from consolidated accumulated deficit for the year ended September 30, 2001. PTI's revenues, net income and net income attributable to common stockholders for that quarter were $3.8 million, $536,000 and $506,000, respectively. On June 26, 2001, the Company completed the purchase of KLA-Tencor, Inc.'s e-Diagnostics product business ("e-Diagnostics"). The e-Diagnostics programs enable service and support teams to remotely access their tools in customer fabs in real-time to diagnose and resolve problems quickly and cost-effectively. On June 25, 2001, the Company acquired CCS Technology, Inc. ("CCST"), a supplier of 300mm automation test and certification software located in Williston, Vermont. On May 15, 2001, the Company acquired SimCon N.V. ("SimCon"), a value-added reseller for the Company's simulation, scheduling, production analysis and dispatching software headquartered in Belgium. On February 16, 2001, the Company acquired SEMY Engineering, Inc. ("SEMY"), a provider of advanced process and equipment control systems for the 15 semiconductor industry located in Phoenix, Arizona. On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and service distributor in Japan. These transactions were recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"). Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2001, include the results of these acquired entities for the periods subsequent to their respective acquisitions. On May 5, 2000, the Company completed the acquisition of Irvine Optical Company LLC ("Irvine Optical") in a transaction accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Irvine Optical are included in the Company's consolidated results for all periods presented. Prior to its acquisition by the Company, Irvine Optical's fiscal year-end was December 31. As a result of conforming dissimilar year-ends, Irvine Optical's results of operations for the three months ended December 31, 1999, are included in both of the Company's fiscal years 2000 and 1999. An amount equal to Irvine Optical's net income for the three months ended December 31, 1999, was eliminated from consolidated accumulated deficit for the year ended September 30, 2000. Irvine Optical's revenues and net income for that quarter were $4.1 million and $0.1 million, respectively. The Company completed two acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB 16: MiTeX Solutions ("MiTeX") on June 23, 2000 and Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") on January 6, 2000. The Company's Consolidated Statements of Operations and of Cash Flows include the results of these entities for the periods subsequent to their respective acquisitions. On August 31, 1999, the Company completed the acquisition of Smart Machines Inc. ("Smart Machines"). The acquisition was accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Smart Machines are included in the Company's consolidated results for all periods presented. The Company completed several acquisitions during the year ended September 30, 1999, which were accounted for using the purchase method of accounting in accordance with APB 16: the Infab Division ("Infab") of Jenoptik AG on September 30, 1999; Domain Manufacturing Corporation ("Domain") on June 30, 1999 and Hanyon Technology, Inc. ("Hanyon") on April 21, 1999. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows include the results of these acquired entities for all periods subsequent to their respective acquisitions. In June 1999, the Company formed a joint venture in Korea. This joint venture is 70% owned by the Company and 30% owned by third parties unaffiliated with the Company. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interest in the consolidated financial statements. RECENT DEVELOPMENTS On December 13, 2001, the Company acquired the Automation Systems Group of Zygo Corporation in exchange for approximately $11 million of cash, net of closing adjustments aggregating approximately $2 million. The Automation Systems Group, located in Florida, is a manufacturer of reticle automation systems, including reticle sorters, reticle macro inspection systems and reticle handling solutions for the semiconductor industry. The transaction will be accounted for as a purchase of assets. On October 23, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire PRI Automation, Inc. ("PRI"). Pursuant to the Merger Agreement and subject to the terms and conditions contained therein, holders of each share of PRI common stock will receive 0.52 shares of the Company's common stock. The Merger, which is expected to close in the first calendar quarter of 2002, is contingent upon the fulfillment of certain conditions as provided in the Merger Agreement including, but not limited to, all required regulatory approvals, the approval of the Merger by the stockholders of PRI and the approval of the issuance of the Company's common stock in the Merger by the stockholders of the Company. 16 PRI supplies advanced factory automation systems, software, and services that optimize the productivity of semiconductor and precision electronics manufacturers, as well as OEM process tool manufacturers. On October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem A.G., a Swiss company ("Tec-Sem") in exchange for $12.9 million in cash and 131,750 shares of Brooks common stock, which had a value of approximately $4 million at the time of issuance, subject to post-closing adjustments. At the same time, the Company obtained an option to acquire, and one of the selling stockholders was given a put to sell, the remaining 10% of the stock of Tec-Sem for $1.1 million in cash and 23,250 shares of Brooks common stock. The Company also made stock grants to certain key non-owner employees of Tec-Sem. Tec-Sem is a manufacturer of bare reticle stockers, tool buffers and batch transfer systems for the semiconductor industry. The transaction will be accounted for as a purchase of assets. On October 5, 2001, the Company acquired substantially all of the assets of General Precision, Inc. ("GPI"), in exchange for 850,000 shares of Brooks common stock, with a market value of approximately $25 million at the time of issuance, subject to post-closing adjustments. GPI, located in Valencia, California, is a supplier of high-end mini-environment solutions for the semiconductor industry. RESULTS OF OPERATIONS The Company's business is significantly dependent on capital expenditures by semiconductor manufacturers and OEMs, which are, in turn, dependent on the current and anticipated market demand for semiconductors. The Company's revenues grew substantially in fiscal 2000 compared to fiscal 1999 due in large part to high levels of capital expenditures of semiconductor manufacturers. Demand for semiconductors is cyclical and has historically experienced periodic downturns. The semiconductor industry is currently experiencing such a downturn, which began to significantly affect the Company in the second half of fiscal 2001 when the demand for the Company's products and services decreased significantly as semiconductor manufacturers sharply reduced capital expenditures. This downturn impacted all of the Company's business segments in the second half of fiscal 2001, affecting revenues and gross margins due to pricing pressure and underabsorbed costs. As a result of this downturn, the Company anticipates lower shipments of its products in the next year, which may result in lower revenues compared to the year ended September 30, 2001. During fiscal 2001, the Company has taken selective cost reduction actions in many areas of its business in response to this ongoing downturn. These cost management initiatives include reductions to headcount, salary and wage reductions and reduced spending. Although the Company will continue to take a proactive approach to cost management in response to this downturn, it will continue to invest in those areas which it believes are important to the long-term growth of the Company, such as its infrastructure, customer support and new products. YEAR ENDED SEPTEMBER 30, 2001, COMPARED TO YEAR ENDED SEPTEMBER 30, 2000 The Company reported a net loss of $29.7 million for the year ended September 30, 2001, compared to net income of $15.1 million in the previous year. The results for the year ended September 30, 2001, include $30.2 million of amortization of acquired intangible assets, $9.3 million of restructuring and acquisition-related charges and $17.2 million of other charges. These other charges, recorded in the fourth quarter, include $13.7 million recorded to cost of product sales, comprised of $13.1 million for valuation adjustments to inventories and $0.6 million for additional warranty reserves; $1.0 million of accelerated amortization of research and development expense; and $2.5 million of sales, general and administrative expense for additional accounts receivable allowances. The results for the previous year include $18.5 million of amortization of acquired intangible assets and $0.6 million of acquisition-related charges. After accretion and dividends on preferred stock of $0.1 million in each year, the Company reported a net loss attributable to common stockholders of $29.8 million in the year ended September 30, 2001 and net income attributable to common stockholders of $15.0 million in the year ended September 30, 2000. 17 REVENUES The Company has adopted the recommendations of Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"), effective October 1, 2000. The adoption of SAB 101 did not have any impact on the Company's results of operations or financial position. The Company reported revenues of $381.7 million in the year ended September 30, 2001, compared to $337.2 million in the previous year, a 13.2% increase. The increase in revenues is principally attributable to incremental revenue from acquisitions and the strength in the first half of fiscal 2001 in both the original equipment manufacturer ("OEM") and end user markets, partially offset by lower revenues in the second half of the fiscal year. The Company's tool automation systems segment reported revenues of $171.3 million in the year ended September 30, 2001, an increase of 2.1% from the prior year. This increase is primarily attributable to growth in the vacuum business area earlier in fiscal 2001, partially offset by lower revenues in the last two quarters of fiscal 2001. The Company's factory interface solutions segment reported an increase of 11.1%, to $97.8 million in the year ended September 30, 2001, compared to the prior year, reflecting in part the strong growth in the Company's Standard Mechanical Interface Facilities ("SMIF") and Front Opening Uniform Pod ("FOUP") product lines. The Company's factory automation solutions segment reported revenues of $112.6 million in the year ended September 30, 2001, an increase of 38.3% from the prior year, principally due to internal growth, the acquisition of ASC and ASI on January 6, 2000 and the acquisition of SEMY on February 16, 2001. Product revenues increased $7.4 million, to $291.7 million, in the year ended September 30, 2001, from $284.4 million in the previous fiscal year. This growth is primarily attributable to the overall strength in the OEM and end user markets in the first half of fiscal 2001 and the Company's recent acquisitions. Service revenues increased $37.2 million, or 70.4%, to $90.0 million. This increase is primarily attributable to internal growth and the Company's acquisitions. Revenues outside the United States were $191.6 million, or 50.2% of revenues, and $161.5 million, or 47.9% of revenues, in the years ended September 30, 2001 and 2000, respectively. The absolute increase in revenues outside the United States is primarily the result of the Company's expanded global presence from its recent acquisitions, while the increase as a percentage of the Company's revenues reflects lower sales in the United States, in particular OEM sales in the second half of fiscal 2001, relative to the rest of the world. The Company expects that foreign revenues will continue to account for a significant portion of total revenues. However, the Company cannot guarantee that foreign revenues, particularly from Asia, will remain a strong component of the Company's total revenues. GROSS MARGIN Gross margin decreased to 39.9% for the year ended September 30, 2001, compared to 47.7% for the previous year. Excluding other charges of $13.7 million referred to above, the Company's gross margin was 43.5% for the year ended September 30, 2001. The Company's tool automation systems segment gross margin decreased to 31.4% in the year ended September 30, 2001, from 42.1% in the prior year. Excluding other charges of $4.9 million, gross margin for the tool automation systems segment in the year ended September 30, 2001 was 34.3%. The decrease is primarily the result of product mix, coupled with the effects of the current downturn in the semiconductor industry. Gross margin for the Company's factory interface solutions segment was 26.4% for the year ended September 30, 2001, a decrease from 39.0% in the prior year. Excluding other charges of $8.1 million, gross margin for this segment was 34.6%. The decrease is primarily the result of product and services mix, combined with the current downturn in the semiconductor industry. The Company's factory automation solutions gross margin for the year ended September 30, 2001 decreased for the factory automation solutions segment to 64.6%, compared to 68.6% in the prior year. Excluding other charges of $0.7 million, gross margin for the year ended September 30, 2001 was 65.3%. The decrease is primarily attributable to product and services mix; specifically, a decrease in license revenues partially offset by an increase in service revenues. 18 Gross margin on product revenues was 42.9% for the year ended September 30, 2001, compared to 50.4% for the prior year. Excluding other charges aggregating $13.7 million, gross margin on product revenues was 47.6% for the year ended September 30, 2001. The decrease is primarily attributable to product mix, coupled with the effects of the current downturn in the semiconductor industry, which impact both pricing and cost absorption. Gross margin on service revenues decreased to 30.2% for the year ended September 30, 2001, from 33.0% in the previous year. The decrease is primarily a result of business mix, combined with the effects of the current downturn in the semiconductor industry. In future years, gross margin may be adversely affected by changes in product mix and/or price competition. RESEARCH AND DEVELOPMENT Research and development expenses for the year ended September 30, 2001, were $60.9 million, an increase of $16.8 million, compared to $44.1 million in the previous year. Research and development expenses also increased as a percentage of revenues, to 16.0%, from 13.1% in the prior year. Excluding other charges of $1.0 million, research and development expenses were 15.7% of revenues in the current year. The increase in absolute spending is the result of the research and development related to the Company's recent acquisitions as well as incremental spending associated with the launch of new products. The increase in these expenditures as a percentage of revenues is attributable in part to the downturn currently affecting the semiconductor industry, which began to impact the Company during the quarterly period ended March 31, 2001. To a lesser extent, this increase is attributable to higher spending levels associated with the Company's recent acquisitions. The Company plans to continue to invest in research and development to enhance existing and develop new tool and factory hardware and software automation solutions for the semiconductor, data storage and flat panel display manufacturing industries. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $95.9 million for the year ended September 30, 2001, an increase of $18.5 million, compared to $77.4 million in the previous year. Selling, general and administrative expenses increased as a percentage of revenues, to 25.1% in the year ended September 30, 2001, from 23.0% in the previous year. Excluding other charges of $2.5 million, selling, general and administrative expenses were 24.5% of revenues in the year ended September 30, 2001. The increase in absolute spending is the result of expanded sales and marketing activities as well as general and administration support costs associated with the Company's recently completed acquisitions and infrastructure improvements, while the increase as a percentage of revenues is attributable primarily to the downturn currently affecting the semiconductor industry. The Company expects that future expenditure levels will continue at or above current levels to support its worldwide sales and administrative organizations. AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS Amortization expense for acquired intangible assets totaled $30.2 million for the year ended September 30, 2001, and relates to acquired intangible assets from the acquisitions of the e-Diagnostics product business, CCST, SimCon and SEMY in the current year, the acquisitions of MiTeX, ASC and ASI in fiscal 2000, the Infab, Domain and Hanyon acquisitions in the second half of fiscal 1999 and Irvine Optical's acquisition of a corporation in March 1997. For the year ended September 30, 2000, amortization expense for acquired intangible assets was $18.5 million, and relates to the fiscal 2000 and fiscal 1999 acquisitions and the Irvine Optical acquisition discussed above. ACQUISITION-RELATED AND RESTRUCTURING COSTS The Company recorded $9.3 million of acquisition-related and restructuring charges during the year ended September 30, 2001, comprised of $3.9 million of acquisition-related costs and $5.4 million of restructuring charges. The acquisition-related costs primarily relate to transaction costs incurred during the 19 Company's recent acquisition of PTI. On September 5, 2001, the Company's Board of Directors approved a formal plan of restructure in response to the current downturn in the semiconductor industry. To that effect, the Company recorded restructuring charges of $5.4 million in the fourth quarter of the fiscal year. Of this amount, $2.0 million is related to workforce reductions of approximately 140 employees which is expected to be paid in 2002 and $3.4 million for the consolidation and strategic focus realignment of several facilities, of which $0.1 million was paid in 2001, $1.7 million is expected to be paid in 2002 and $1.6 million in the subsequent years. These measures were largely intended to align the Company's capacity and infrastructure to anticipated customer demand. Workforce charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company's excess facilities were recorded to recognize the lower of the amount of the remaining lease obligations, net of any sublease rentals, or the expected lease settlement costs. These costs have been estimated from the time when the space is expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities will be charged to operations. Acquisition-related charges of $0.6 million in the year ended September 30, 2000, relate primarily to transaction costs in connection with the acquisition of Irvine Optical. The activity related to the Company's acquisition-related and restructuring accruals is below (in thousands):
FISCAL 2001 ACTIVITY ------------------------------------------------------------------- NEW INITIATIVES BALANCE -------------------- BALANCE SEPTEMBER 30, PURCHASE SEPTEMBER 30, 2000 EXPENSE ACCOUNTING UTILIZATION 2001 -------------- ------- ---------- ----------- ------------- Facilities $507 $3,369 $-- $ (567) $3,309 Workforce-related 20 2,000 -- (68) 1,952 Other 11 3,945 -- (3,956) -- ---- ------ -- ------- ------ $538 $9,314 $-- $(4,591) $5,261 ==== ====== == ======= ======
INTEREST INCOME AND EXPENSE Interest income increased by $2.8 million, to $12.5 million, in the year ended September 30, 2001, compared to an increase of $6.6 million to $9.7 million the previous year. This increase is due primarily to higher cash and investment asset balances which resulted from investing the proceeds from the Company's private placement of $175.0 million aggregate Convertible Subordinated Notes in May 2001 and the public offering of shares of its common stock in March 2000. Interest expense of $4.1 million for the year ended September 30, 2001, relates primarily to the 4.75% Convertible Subordinated Notes, imputed interest on notes payable related to the e-Diagnostics and SimCon acquisitions and the Company's note payable to Daifuku America in connection with the acquisition of ASC and ASI, which was discharged on January 5, 2001. Interest expense in the prior year primarily relates to Irvine Optical's debt, which was paid by Brooks subsequent to the Company's acquisition of Irvine Optical, and the note payable to Daifuku America. INCOME TAX PROVISION (BENEFIT) The Company recorded a net income tax benefit of $6.4 million in the year ended September 30, 2001 and net income tax expense of $13.6 million in the year ended September 30, 2000. The tax benefit recorded in fiscal 2001 is primarily due to anticipated future tax benefit of domestic net operating losses and research and development credits, partially offset by provisions for taxes on overseas earnings. The fiscal 2000 tax provision is attributable to federal, state, foreign and withholding taxes. Federal and state taxes have been reduced for net operating losses, research and development tax credits and a foreign sales corporation benefit. The Company has recorded a deferred tax asset of $38.9 million. Realization is dependent on generating sufficient taxable income prior to expiration of loss carryforwards, which will expire at various dates through 2021. Although realization is not assured, management believes it is more likely than not that all of the 20 deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. YEAR ENDED SEPTEMBER 30, 2000, COMPARED TO YEAR ENDED SEPTEMBER 30, 1999 The Company reported net income of $15.1 million for the year ended September 30, 2000, compared to a net loss of $9.5 million in the previous year. Net income attributable to common shareholders for the year ended September 30, 2000 include $18.5 million of amortization of acquired intangible assets, $0.6 million of acquisition-related charges and $0.1 million of accretion and dividends on preferred stock. The Company's net loss attributable to common stockholders in the previous year includes $0.6 million of amortization of acquired intangible assets, $5.3 million of acquisition-related and restructuring charges and other costs and $0.8 million of accretion and dividends on preferred stock. REVENUES The Company reported revenues of $337.2 million in the year ended September 30, 2000, compared to $123.0 million in the previous year, a 174.2% increase. The overall increase is principally attributable to the strength in both the original equipment manufacturer ("OEM") and end user markets and incremental revenue from acquisitions. The Company experienced growth in all of the geographic regions in which it operates. Revenues for each of the Company's segments increased from the prior year. Revenues for the tool automation systems segment more than doubled, to $167.8 million, from $79.1 million in the prior year. The Company's factory interface solutions segment had revenues of $88.1 million in the year ended September 30, 2000, more than four times the $19.6 million reported in the prior year. Revenues for the factory automation solutions segment were $81.4 million, more than triple the $24.2 million reported in the prior year. Product revenues increased $182.9 million, or 180.2%, to $284.4 million in the year ended September 30, 2000, from $101.5 million in the previous fiscal year. This growth is primarily attributable to the overall strength in the OEM and End User markets and acquisitions. Service revenues increased $31.3 million, or 146.0%, to $52.8 million. This increase is primarily attributable to internal growth and the Company's acquisitions. Revenues outside the United States were $161.5 million, or 47.9% of revenues, and $53.1 million, or 43.2% of revenues, in the years ended September 30, 2000 and 1999, respectively. The increase is primarily the result of the Company's expanded global presence from its recent acquisitions. GROSS MARGIN Gross margin increased to 47.7% for the year ended September 30, 2000, compared to 44.9% for the previous year. The Company's tool automation systems segment gross margin increased to 42.1% in the year ended September 30, 2000, from 33.8% in the prior year, and is primarily the result of operational efficiencies and change in product mix. This increase was partially offset by decreases in gross margins for the Company's other segments. Gross margin for the Company's factory interface solutions segment decreased to 39.0%, from 49.4% in the prior year, while the factory automation solutions gross margin decreased to 68.6%, from 77.4% in the prior year. The decline in the factory interface solutions segment is primarily the result of change in product mix, while the factory automation solutions segment is primarily attributable to the acquired service business of ASC, which has a historically lower margin structure than that of the segment. Gross margin on product revenues was 50.4% for the year ended September 30, 2000. Gross margin on product revenues for the year ended September 30, 1999, which included charges aggregating $1.6 million, comprised of $1.0 million to provide additional reserves for slow-moving and obsolete inventories and $0.6 million of additional depreciation expense, was 46.6%. Excluding these charges, gross margin for the year ended September 30, 1999, was 49.7%. The increase is primarily attributable to improvements in manufacturing capacity utilization and the acquisition of higher margin software product businesses, partially offset by the Infab operations' historically lower margin structure. 21 Gross margin on service revenues decreased to 33.0% for the year ended September 30, 2000, from 36.8% in the previous year. The decrease is primarily a result of business mix, combined with ASC's historically lower margin structure. Included in the cost of service revenues are global customer support costs, consisting primarily of personnel costs and travel expenses. RESEARCH AND DEVELOPMENT Research and development expenses for the year ended September 30, 2000, were $44.1 million, an increase of $19.6 million, compared to $24.5 million in the previous year. However, research and development expenses decreased as a percentage of revenues, to 13.1%, from 19.9% in fiscal 1999. The increase in absolute spending is the result of the research and development efforts related to the Company's acquisitions as well as incremental spending associated with the launch of new atmospheric products and the transition to the next generation vacuum wafer handling products, partially offset by the elimination of redundant research and development programs. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $77.4 million for the year ended September 30, 2000, an increase of $38.6 million, compared to $38.8 million in the previous year. However, selling, general and administrative expenses decreased as a percentage of revenues, to 23.0% in the year ended September 30, 2000, from 31.5% in the previous year. The increase in absolute spending is the result of expanded sales and marketing activities as well as general and administration support costs associated with the Company's acquisitions and infrastructure improvements, while the improvement of these costs as a percentage of revenues reflects the Company's efforts at expanding its product offerings and customer base. AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS Amortization expense for acquired intangible assets totaled $18.5 million for the year ended September 30, 2000, and relates to acquired intangible assets from the June 23, 2000 MiTeX acquisition, the January 6, 2000 ASC and ASI acquisition, the Infab, Domain and Hanyon acquisitions, all of which occurred during the second half of fiscal 1999 and Irvine Optical's acquisition of a corporation in March 1997. Amortization expense for acquired intangible assets was $0.6 million in the year ended September 30, 1999, and relates to the Domain and Hanyon acquisitions and Irvine Optical's acquisition. ACQUISITION-RELATED AND RESTRUCTURING COSTS Acquisition-related charges of $0.6 million in the year ended September 30, 2000, relate primarily to transaction costs in connection with the acquisition of Irvine Optical. In fiscal 1999, the Company incurred acquisition-related and restructuring costs of $3.1 million, comprised of $1.2 million for transaction costs related to the Smart Machines acquisition, $0.3 million for severance costs and $1.6 million for the write-off of certain fixed assets. INTEREST INCOME AND EXPENSE Interest income increased by $6.6 million, to $9.7 million, in the year ended September 30, 2000, compared to the previous year. This increase is due primarily to higher cash and investment asset balances that resulted from the Company's public offering of shares of common stock in March 2000. Interest expense of $1.3 million and $1.6 million for the years ended September 30, 2000 and 1999, respectively, relates primarily to Irvine Optical's debt, which was discharged on May 6, 2000. Fiscal 2000 interest expense also includes interest on the Company's note payable to Daifuku America issued as part of the consideration for the Company's acquisition of ASC and ASI. INCOME TAX PROVISION (BENEFIT) The Company recorded net income tax expense of $13.6 million for the year ended September 30, 2000, and net income tax benefits of $0.9 million for the year ended September 30, 1999. The fiscal 2000 tax 22 provision is attributable to federal, state, foreign and withholding taxes. Federal and state taxes have been reduced for net operating losses, research and development tax credits and a foreign sales corporation benefit. The tax benefit recorded in fiscal 1999 is primarily due to anticipated future tax benefit of domestic net operating losses and research and development credits, partially offset by a $1.6 million increase in the deferred tax asset valuation allowance. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company had cash, cash equivalents and marketable securities aggregating $329.7 million. This amount was comprised of $160.2 million of cash and cash equivalents, $43.6 million of investments in short-term marketable securities and $125.9 million of investments in long-term marketable securities. Cash and cash equivalents were $160.2 million at September 30, 2001, an increase of $26.6 million from September 30, 2000. This increase in cash and cash equivalents is primarily the result of proceeds of $169.5 million, net of costs, from the Company's private placement of 4.75% Convertible Subordinated Notes completed on May 23, 2001, partially offset by payment of net cash consideration of $34.5 million for SEMY on February 16, 2001, payment of the Company's $16.0 million note payable to Daifuku America on January 5, 2001 in connection with its January 2000 acquisition of ASC and ASI, the purchase of the Company's headquarters complex on January 29, 2001 for $28.9 million in cash and net purchases of marketable securities of $66.4 million. Cash provided by operations was $20.7 million for the year ended September 30, 2001, and is primarily attributable to a decrease in accounts receivable of $8.4 million and an increase in gross inventories of $2.6 million, offset by additional inventory valuation adjustments of $13.1 million. The Company's net loss of $29.7 million included depreciation and amortization of $45.0 million, and an increase to the Company's net deferred tax asset of $14.1 million. The decrease in accounts receivable is primarily the result of lower sales in the second half of the fiscal year due to the economic downturn currently affecting the semiconductor industry. Cash used in investing activities was $153.7 million for the year ended September 30, 2001, and was principally comprised of $181.4 million invested in marketable securities, $34.5 million for the purchase of SEMY on February 16, 2001, net of cash acquired, $4.7 million of cash payments for other acquisitions, net of cash acquired and $53.7 million used for capital additions, including $28.9 million for the purchase on January 29, 2001 of the Company's headquarters complex located in Chelmsford, Massachusetts. These expenditures were partially offset by the sale of $115.0 million of the Company's investments in marketable securities and $6.0 million in cash payments to the Company for settlements related to previous acquisitions the Company had made. Cash provided by financing activities was $161.8 million for the year ended September 30, 2001, and is primarily comprised of $169.5 million, net of costs, received from the private placement of 4.75% Convertible Subordinated Notes on May 23, 2001 and $9.1 million from the issuance of stock under the Company's employee stock purchase plan and the exercise of options to purchase the Company's common stock. These amounts were partially offset by $16.0 million paid on January 5, 2001 to retire the Company's note payable to Daifuku America in connection with the acquisition of ASC and ASI, $0.4 million for the repayment of PTI's revolving credit facility and $0.5 million for the payment of long-term debt. In connection with the acquisition of the e-Diagnostics product business, the Company issued a $17.0 million one-year note payable to the selling stockholders. The note is payable in cash or common stock, or any combination thereof, at the Company's discretion. The Company currently intends to settle this note in common stock; however, if the Company elects to settle all or a portion of the note in cash, up to $17.0 million would be required for payment in June of 2002. Additional cash payments aggregating a maximum of $8.0 million over the next three years could be required for payment of consideration contingent upon meeting certain performance objectives, if the Company elected to settle any or all potential contingent payments in cash. 23 In connection with its acquisition of SimCon, the Company issued a note payable to the selling stockholders for $750,000, payable in one year. This note will be settled with shares of the Company's common stock. No cash payment will be required. On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. The amount sold includes $25.0 million principal amount of notes purchased by the initial purchaser upon exercise in full of their 30-day option to purchase additional notes. The Company received net proceeds of $169.5 million from the sale. Interest on the notes will be paid on June 1 and December 1 of each year, with the first interest payment due on December 1, 2001. The notes will mature on June 1, 2008. The Company may redeem the notes at stated premiums on or after June 6, 2004, or earlier if the price of the Company's common stock reaches certain prices. Holders may require the Company to repurchase the notes upon a change in control of the Company in certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of the Company's common stock, at a conversion price of $70.23 per share, subject to certain adjustments. The notes are subordinated to the Company's senior indebtedness and structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries. While the Company has no significant capital commitments, as it expands its product offerings, the Company anticipates that it will continue to make capital expenditures to support its business and improve its computer systems infrastructure. The Company may also use its resources to acquire companies, technologies or products that complement the business of the Company. The Company terminated its $30.0 million unsecured revolving credit facility and replaced it with a $10.0 million uncommitted demand promissory note facility with ABN AMRO Bank N.V. ("ABN AMRO") on May 2, 2000. The Company transferred all outstanding letters of credit, totaling approximately $1.1 million, to the new facility. ABN AMRO is not obligated to extend loans or issue letters of credit under this new facility. At September 30, 2001, approximately $1.2 million of the facility was in use, all of it for letters of credit. The Company believes that its existing resources will be adequate to fund the Company's currently planned working capital and capital expenditure requirements for at least the next twelve months. The cyclical nature of the semiconductor industry makes it very difficult for the Company to predict future liquidity requirements with certainty. In addition, the Company may experience unforeseen capital needs in connection with both its recently completed acquisitions and its planned acquisition of PRI. The sufficiency of the Company's resources to fund its needs for capital is subject to known and unknown risks, uncertainties and other factors which may have a material adverse effect on the Company's business, including, without limitation, the factors discussed under "Factors That May Affect Future Results." RECENT ACCOUNTING PRONOUNCEMENTS In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS 144 supersedes FASB Statement No. 121 ("FAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 144 applies to all long-lived assets and consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management is currently evaluating the effect, if any, FAS 144 will have on its financial position and results of operations. In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 ("FAS 141"), "Business Combinations" and No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. FAS 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. FAS 142 requires that goodwill 24 and identifiable intangible assets determined to have an indefinite life no longer be amortized, but instead be tested for impairment at least annually. The Company is required to adopt FAS 142 in the fiscal year beginning October 1, 2002, at which time amortization of goodwill will cease. The Company has evaluated the impact of adoption of FAS 142 in respect of acquisitions accounted for as purchase transactions and completed prior to June 30, 2001. The application of the separate recognition criteria for intangible assets and the cessation of amortization of goodwill will result in goodwill of approximately $67 million at September 30, 2001 being subject to an annual impairment test, unless interim indicators indicate a need for an interim test, and a resulting expected reduction of goodwill amortization expense of approximately $32 million, $22 million and $11 million in fiscal 2002, 2003 and 2004, respectively. FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information provided by Brooks or statements made by its employees may contain forward-looking information that involves substantial known and unknown risks and uncertainties such as those described below that could cause actual results to differ materially from targets or projected results. You should carefully consider the risks described below and the other information in this report before deciding to invest in shares of our common stock. While these are the risks and uncertainties we believe are most important for you to consider, you should know that they are not the only risks or uncertainties facing us or which may adversely affect our business. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results would likely suffer. In that event, the market price of our common stock could decline and you could lose all or part of the money you paid to buy our common stock. RISK FACTORS RELATING TO BROOKS' INDUSTRY THE CYCLICAL DEMAND OF SEMICONDUCTOR MANUFACTURERS AFFECTS BROOKS' OPERATING RESULTS AND THE ONGOING DOWNTURN IN THE INDUSTRY COULD SERIOUSLY HARM BROOKS' OPERATING RESULTS. Brooks' business is significantly dependent on capital expenditures by semiconductor manufacturers. The level of semiconductor manufacturers' capital expenditures is dependent on the current and anticipated market demand for semiconductors. The semiconductor industry is highly cyclical and is currently experiencing a downturn. Brooks anticipates the downturn will continue during the next few quarters. Despite these industry conditions, Brooks plans to continue to invest in those areas which Brooks believes are important to its long-term growth, such as its infrastructure and information technology system, customer support, supply chain management and new products. As a result, consistent with its experience in downturns in the past, Brooks believes the current industry downturn will lead to reduced revenues for it and may cause it to incur losses. INDUSTRY CONSOLIDATION AND OUTSOURCING OF THE MANUFACTURE OF SEMICONDUCTORS TO FOUNDRIES COULD REDUCE THE NUMBER OF AVAILABLE CUSTOMERS. The substantial expense of building or expanding a semiconductor fabrication facility is leading increasing numbers of semiconductor companies to contract with foundries, which manufacture semiconductors designed by others. As manufacturing is shifted to foundries, the number of Brooks' potential customers could decrease, which would increase its dependence on its remaining customers. Recently, consolidation within the semiconductor manufacturing industry has increased. If semiconductor manufacturing is consolidated into a small number of foundries and other large companies, Brooks' failure to win any significant bid to supply equipment to those customers could seriously harm its reputation and materially and adversely affect its revenue and operating results. 25 RISK FACTORS RELATING TO BROOKS' OPERATIONS BROOKS' SALES VOLUME SUBSTANTIALLY DEPENDS ON THE SALES VOLUME OF BROOKS' ORIGINAL EQUIPMENT MANUFACTURER CUSTOMERS AND ON INVESTMENT IN MAJOR CAPITAL EXPANSION PROGRAMS, RETROFITS AND UPGRADES BY END-USER SEMICONDUCTOR MANUFACTURING COMPANIES. Brooks sells a majority of its tool automation products to original equipment manufacturers that incorporate Brooks' products into their equipment. Therefore, Brooks' revenues depend on the ability of these customers to develop, market and sell their equipment in a timely, cost-effective manner. Brooks also generates significant revenues from large orders from semiconductor manufacturing companies that build new plants or invest in major automation retrofits and upgrades. Brooks' revenues depend, in part, on continued capital investment by semiconductor manufacturing companies. BROOKS RELIES ON A RELATIVELY LIMITED NUMBER OF CUSTOMERS FOR A LARGE PORTION OF ITS REVENUES AND BUSINESS. Brooks receives a significant portion of its revenues in each fiscal period from a relatively limited number of customers. The loss of one or more of these major customers, or a decrease in orders by one or more customers, could adversely affect Brooks' revenue, business and reputation. Sales to Brooks' ten largest customers accounted for approximately 37% of total revenues in fiscal 2001 and 43% of total revenues in fiscal 2000. DELAYS IN OR CANCELLATION OF SHIPMENTS OF A FEW OF BROOKS' LARGE ORDERS COULD SUBSTANTIALLY DECREASE ITS REVENUES OR REDUCE ITS STOCK PRICE. Historically, a substantial portion of Brooks' quarterly and annual revenues has come from sales of a small number of large orders. Some of Brooks' products have high selling prices compared to Brooks' other products. As a result, the timing of when Brooks recognizes revenue from one of these large orders can have a significant impact on its total revenues and operating results for a particular period and reduce its stock price because its sales in that fiscal period could fall significantly below the expectations of financial analysts and investors. This could cause the value of its common stock to fall. Brooks' operating results could be harmed if a small number of large orders are canceled or rescheduled by customers or cannot be filled due to delays in manufacturing, testing, shipping or product acceptance. DEMAND FOR BROOKS' PRODUCTS FLUCTUATES RAPIDLY AND UNPREDICTABLY, WHICH MAKES IT DIFFICULT TO MANAGE ITS BUSINESS EFFICIENTLY AND CAN REDUCE ITS GROSS MARGINS AND PROFITABILITY. Brooks' expense levels are based in part on its expectations for future demand. Many expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. The rapid and unpredictable shifts in demand for Brooks' products make it difficult to plan manufacturing capacity and business operations efficiently. If demand is significantly below expectations, Brooks may be unable to rapidly reduce these fixed costs, which can diminish gross margins and cause losses. A sudden downturn may also leave Brooks with excess inventory, which may be rendered obsolete as products evolve during the downturn and demand shifts to newer products. Brooks' ability to reduce expenses is further constrained because it must continue to invest in research and development to maintain its competitive position and to maintain service and support for its existing global customer base. Conversely, in sudden upturns, Brooks sometimes incurs significant expenses to rapidly expedite delivery of components, procure scarce components and outsource additional manufacturing processes. These expenses could reduce its gross margins and overall profitability. Any of these results could seriously harm Brooks' business. BROOKS' LENGTHY SALES CYCLE REQUIRES IT TO INCUR SIGNIFICANT EXPENSES WITH NO ASSURANCE THAT BROOKS WILL GENERATE REVENUE. Brooks' tool automation products are generally incorporated into original equipment manufacturer equipment at the design stage. To obtain new business from its original equipment manufacturer customers, Brooks must develop products for selection by a potential customer at the design stage. This often requires 26 Brooks to make significant expenditures without any assurance of success. The original equipment manufacturer's design decisions often precede the generation of volume sales, if any, by a year or more. Brooks cannot guarantee that the equipment manufactured by its original equipment manufacturing customers will be commercially successful. If Brooks or its original equipment manufacturing customers fails to develop and introduce new products successfully and in a timely manner, Brooks' business and financial results will suffer. Brooks also must complete successfully a costly evaluation and proposal process before Brooks can achieve volume sales of Brooks factory automation software to customers. These undertakings are major decisions for most prospective customers and typically involve significant capital commitments and lengthy evaluation and approval processes. Brooks cannot guarantee that it will continue to satisfy evaluations by its end-user customers. BROOKS' OPERATING RESULTS WOULD BE HARMED IF ONE OF ITS KEY SUPPLIERS FAILS TO DELIVER COMPONENTS FOR BROOKS' PRODUCTS. Brooks currently obtains many of its components on an as needed, purchase order basis. Generally, Brooks does not have any long-term supply contracts with its vendors and believes many of its vendors have been taking cost containment measures in response to the industry downturn. When demand for semiconductor manufacturing equipment increases, Brooks' suppliers face significant challenges in delivering components on a timely basis. Brooks' inability to obtain components in required quantities or of acceptable quality could result in significant delays or reductions in product shipments. This could create customer dissatisfaction, cause lost revenue and otherwise materially and adversely affect Brooks' operating results. Delays on Brooks' part could also cause it to incur contractual penalties for late delivery. BROOKS MAY EXPERIENCE DELAYS AND TECHNICAL DIFFICULTIES IN NEW PRODUCT INTRODUCTIONS AND MANUFACTURING, WHICH CAN ADVERSELY AFFECT ITS REVENUES, GROSS MARGINS AND NET INCOME. Because Brooks' systems are complex, there can be a significant lag between the time Brooks introduces a system and the time it begins to produce that system in volume. As technology in the semiconductor industry becomes more sophisticated, Brooks is finding it increasingly difficult to design and integrate complex technologies into its systems, to procure adequate supplies of specialized components, to train its technical and manufacturing personnel and to make timely transitions to high-volume manufacturing. Many customers also require customized systems, which compound these difficulties. Brooks sometimes incurs substantial unanticipated costs to ensure that its new products function properly and reliably early in their life cycle. These costs could include greater than expected installation and support costs or increased materials costs as a result of expedited changes. Brooks may not be able to pass these costs on to its customers. In addition, Brooks has experienced, and may continue to experience, difficulties in both low and high volume manufacturing. Any of these results could seriously harm Brooks' business. Moreover, on occasion Brooks has failed to meet its customers' delivery or performance criteria, and as a result Brooks incurred late delivery penalties and had higher warranty and service costs. These failures could continue and could also cause Brooks to lose business from those customers and suffer long-term damage to its reputation. BROOKS MAY BE UNABLE TO RECRUIT AND RETAIN NECESSARY PERSONNEL BECAUSE OF INTENSE COMPETITION FOR HIGHLY SKILLED PERSONNEL. Brooks needs to retain a substantial number of employees with technical backgrounds for both its hardware and software engineering, manufacturing, sales and support staffs. The market for these employees is intensively competitive, and Brooks has occasionally experienced delays in hiring qualified personnel. Due to the cyclical nature of the demand for its products and the current downturn in the semiconductor market, Brooks recently reduced its workforce as a cost reduction measure. If the semiconductor market experiences an upturn, Brooks may need to rebuild its workforce. Due to the competitive nature of the labor markets in which Brooks operates, this type of employment cycle increases Brooks' risk of being unable to retain and recruit key personnel. Brooks' inability to recruit, retain and train adequate numbers of qualified personnel on 27 a timely basis could adversely affect its ability to develop, manufacture, install and support its products and may result in lost revenue and market share if customers seek alternative solutions. BROOKS' INTERNATIONAL BUSINESS OPERATIONS EXPOSE IT TO A NUMBER OF DIFFICULTIES IN COORDINATING ITS ACTIVITIES ABROAD AND IN DEALING WITH MULTIPLE REGULATORY ENVIRONMENTS. Sales to customers outside North America accounted for approximately 50% of Brooks' total revenues in fiscal 2001, 48% in fiscal 2000 and 43% in fiscal 1999. Brooks anticipates that international sales will continue to account for a significant portion of its revenues. Many of Brooks' vendors are located in foreign countries. As a result of its international business operations, Brooks is subject to various risks, including: - difficulties in staffing and managing operations in multiple locations in many countries; - difficulties in managing distributors, representatives and third party systems integrators; - challenges presented by collecting trade accounts receivable in foreign jurisdictions; - longer sales-cycles; - possible adverse tax consequences; - fewer legal protections for intellectual property; - governmental currency controls and restrictions on repatriation of earnings; - changes in various regulatory requirements; - political and economic changes and disruptions; and - export/import controls and tariff regulations. To support its international customers, Brooks maintains locations in several countries, including Belgium, Canada, China, Germany, Japan, Malaysia, Singapore, South Korea, Switzerland, Taiwan and the United Kingdom. Brooks cannot guarantee that it will be able to manage these operations effectively. Brooks cannot assure you that its investment in these international operations will enable it to compete successfully in international markets or to meet the service and support needs of its customers, some of whom are located in countries where Brooks has no infrastructure. Although Brooks' international sales are primarily denominated in U.S. dollars, changes in currency exchange rates can make it more difficult for Brooks to compete with foreign manufacturers on price. If Brooks' international sales increase relative to its total revenues, these factors could have a more pronounced effect on Brooks' operating results. BROOKS MUST CONTINUALLY IMPROVE ITS TECHNOLOGY TO REMAIN COMPETITIVE. Technology changes rapidly in the semiconductor, data storage and flat panel display manufacturing industries. Brooks believes its success depends in part upon its ability to enhance its existing products and to develop and market new products to meet customer needs, even in industry downturns. For example, as the semiconductor industry transitions from 200mm manufacturing technology to 300mm technology, Brooks believes it is important to its future success to develop and sell new products that are compatible with 300mm technology. If competitors introduce new technologies or new products, Brooks' sales could decline and its existing products could lose market acceptance. Brooks cannot guarantee that it will identify and adjust to changing market conditions or succeed in introducing commercially rewarding products or product enhancements. The success of Brooks' product development and introduction depends on a number of factors, including: - accurately identifying and defining new market opportunities and products; - completing and introducing new product designs in a timely manner; - market acceptance of Brooks' products and its customers' products; 28 - timely and efficient software development, testing and process; - timely and efficient implementation of manufacturing and assembly processes; - product performance in the field; - development of a comprehensive, integrated product strategy; and - efficient implementation and installation and technical support services. Because Brooks must commit resources to product development well in advance of sales, its product development decisions must anticipate technological advances by leading semiconductor manufacturers. Brooks may not succeed in that effort. Its inability to select, develop, manufacture and market new products or enhance its existing products could cause it to lose its competitive position and could seriously harm its business. BROOKS FACES SIGNIFICANT COMPETITION WHICH COULD RESULT IN DECREASED DEMAND FOR BROOKS' PRODUCTS OR SERVICES. The markets for Brooks' products are intensely competitive. Brooks may be unable to compete successfully. Brooks believes the primary competitive factors in the tool automation systems segment are throughput, reliability, contamination control, accuracy and price/performance. Brooks believes that its primary competition in the tool automation market is from integrated original equipment manufacturers that satisfy their semiconductor and flat panel display handling needs internally rather than by purchasing systems or modules from an independent supplier like Brooks. Many of these original equipment manufacturers have substantially greater resources than Brooks does. Applied Materials, Inc., the leading process equipment original equipment manufacturer, develops and manufactures its own central wafer handling systems and modules. Brooks may not be successful in selling its products to original equipment manufacturers that internally satisfy their wafer or substrate handling needs, regardless of the performance or the price of Brooks products. Moreover, integrated original equipment manufacturers may begin to commercialize their handling capabilities and become Brooks competitors. Brooks believes that the primary competitive factors in the end-user semiconductor manufacturer market for factory automation and process control solutions are product functionality, price/performance, ease of use, ease of integration and installation, hardware and software platform compatibility, costs to support and maintain, vendor reputation and financial stability. The relative importance of these competitive factors may change over time. Brooks directly competes in this market with various competitors, including Applied Materials-Consilium, IBM, Si-view, Compaq, TRW, Camstar and numerous small, independent software companies. Brooks also competes with the in-house software staffs of semiconductor manufacturers like NEC, Texas Instruments and Intel. Most of those manufacturers have substantially greater resources than Brooks does. Brooks believes that the primary competitive factors in the factory interface market are technical and technological capabilities, reliability, price/performance, ease of integration and global sales and support capability. In this market, Brooks competes directly with Asyst, Rorze, Fortrend, Newport, TOK, Yasakawa and Hirata. Some of these competitors have substantial financial resources and extensive engineering, manufacturing and marketing capabilities. MUCH OF BROOKS' SUCCESS AND VALUE LIES IN ITS OWNERSHIP AND USE OF INTELLECTUAL PROPERTY, AND BROOKS' FAILURE TO PROTECT THAT PROPERTY COULD ADVERSELY AFFECT ITS FUTURE OPERATIONS. Brooks' ability to compete is heavily affected by its ability to protect its intellectual property. Brooks relies primarily on trade secret laws, confidentiality procedures, patents, copyrights, trademarks and licensing arrangements to protect its intellectual property. The steps Brooks has taken to protect its technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. Brooks' patents could be invalidated or circumvented. The laws of certain foreign countries in which Brooks products are or may be developed, manufactured or sold may not fully protect Brooks' products. This may make the possibility 29 of piracy of Brooks' technology and products more likely. Brooks cannot guarantee that the steps Brooks has taken to protect its intellectual property will be adequate to prevent misappropriation of its technology. Other companies could independently develop similar or superior technology without violating Brooks' proprietary rights. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Brooks may engage in litigation to: - enforce its patents; - protect its trade secrets or know-how; - defend itself against claims alleging it infringes the rights of others; or - determine the scope and validity of the patents or intellectual property rights of others. Any litigation could result in substantial cost to Brooks and divert the attention of Brooks' management, which could harm its operating results and its future operations. A party making such a claim could secure a judgment against Brooks that requires it to pay substantial damages. A judgment could also include an injunction or other court order that could prevent Brooks from selling its products. Any of these events could seriously harm Brooks' business. BROOKS' OPERATIONS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Particular aspects of Brooks' technology could be found to infringe on the intellectual property rights or patents of others. Other companies may hold or obtain patents on inventions or may otherwise claim proprietary rights to technology necessary to Brooks' business. Brooks cannot predict the extent to which it may be required to seek licenses or alter its products so that they no longer infringe the rights of others. Brooks cannot guarantee that the terms of any licenses it may be required to seek will be reasonable. Similarly, changing Brooks' products or processes to avoid infringing the rights of others may be costly or impractical or could detract from the value of its products. BROOKS' BUSINESS MAY BE HARMED BY INFRINGEMENT CLAIMS OF GENERAL SIGNAL OR APPLIED MATERIALS. Brooks received notice from General Signal Corporation alleging certain of Brooks' products infringed its patent rights. The notification advised Brooks that General Signal was attempting to enforce its rights to those patents in litigation against Applied Materials, and that, at the conclusion of that litigation, General Signal intended to enforce its rights against us and others. According to a press release issued by Applied Materials in November 1997, Applied Materials settled its litigation with General Signal by acquiring ownership of five General Signal patents. Although not verified by Brooks, these five patents would appear to be the patents referred to by General Signal in its prior notice to Brooks. Applied Materials has not contacted Brooks regarding these patents. BROOKS DOES NOT HAVE LONG-TERM CONTRACTS WITH ITS CUSTOMERS AND BROOKS' CUSTOMERS MAY CEASE PURCHASING BROOKS' PRODUCTS AT ANY TIME. Brooks generally does not have long-term contracts with its customers. As a result, Brooks' agreements with its customers do not provide any assurance of future sales. Accordingly: - Brooks' customers can cease purchasing its products at any time without penalty; - Brooks' customers are free to purchase products from Brooks' competitors; - Brooks is exposed to competitive price pressure on each order; and - Brooks' customers are not required to make minimum purchases. BROOKS' SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST REVENUE, DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS WITH SUBSTANTIAL LITIGATION COSTS. 30 Complex software products like Brooks' can contain errors or defects, particularly when Brooks first introduces new products or when it releases new versions or enhancements. Any defects or errors could result in lost revenue or a delay in market acceptance, which would seriously harm Brooks' business and operating results. Brooks has occasionally discovered software errors in its new software products and new releases after their introduction, and Brooks expects that this will continue. Despite internal testing and testing by current and potential customers, Brooks' current and future products may contain serious defects. Because many of Brooks' customers use their products for business-critical applications, any errors, defects or other performance problems could result in financial or other damage to Brooks' customers and could significantly impair their operations. Brooks' customers could seek to recover damages from Brooks for losses related to any these issues. A product liability claim brought against Brooks, even if not successful, would likely be time-consuming and costly to defend and could adversely affect Brooks' marketing efforts. BROOKS' FUTURE OPERATIONS COULD BE HARMED IF THE COMMERCIAL ADOPTION OF 300MM WAFER TECHNOLOGY CONTINUES TO PROGRESS SLOWLY OR IS HALTED. Brooks' future operations depend in part on the adoption of new systems and technologies to automate the processing of 300mm wafers. However, the industry transition from the current, widely used 200mm manufacturing technology to 300mm manufacturing technology is occurring more slowly than expected. A significant delay in the adoption of 300mm manufacturing technology, or the failure of the industry to adopt 300mm manufacturing technology, could significantly impair Brooks' operations. Moreover, continued delay in transition to 300mm technology could permit Brooks' competitors to introduce competing or superior 300mm products at more competitive prices. As a result of these factors, competition for 300mm orders could become vigorous and could harm Brooks' results of operations. BROOKS' RECENT RAPID GROWTH IS STRAINING ITS OPERATIONS AND REQUIRING IT TO INCUR COSTS TO UPGRADE ITS INFRASTRUCTURE. During fiscal 2000 and 2001, Brooks experienced extremely rapid growth in its operations, its product offerings and the geographic area of its operations. The proposed merger with PRI will continue this trend. Brooks' growth has placed a significant strain on its management, operations and financial systems. Brooks' future operating results will depend in part on its ability to continue to implement and improve its operating and financial controls and management information systems. If Brooks fails to manage its growth effectively, its financial condition, results of operations and business could be harmed. BROOKS' SYSTEMS INTEGRATION SERVICES BUSINESS HAS GROWN SIGNIFICANTLY RECENTLY AND POOR EXECUTION OF THOSE SERVICES COULD ADVERSELY IMPACT BROOKS' OPERATING RESULTS. The number of projects Brooks is pursuing for its systems integration services business has grown significantly recently. This business consists of integrating combinations of Brooks software and hardware products to provide more comprehensive solutions for Brooks' end-user customers. The delivery of these services typically is complex, requiring that Brooks coordinate personnel with varying technical backgrounds in performing substantial amounts of services in accordance with timetables. Brooks is in the early stages of developing this business and it is subject to the risks attendant to entering a business in which it has limited direct experience. In addition, Brooks' ability to supply these services and increase its revenues is limited by its ability to retain, hire and train systems integration personnel. Brooks believes that there is significant competition for personnel with the advanced skills and technical knowledge that it needs. Some of Brooks' competitors may have greater resources to hire personnel with those skills and knowledge. Brooks' operating margins could be adversely impacted if it does not effectively hire and train additional personnel or deliver systems integration services to its customers on a satisfactory and timely basis consistent with its budgets. THE EFFECT OF TERRORIST THREATS ON THE GENERAL ECONOMY COULD DECREASE BROOKS' REVENUES. On September 11, 2001, the United States was subject to terrorist attacks at the World Trade Center buildings in New York City and the Pentagon in Washington, D.C. The potential near- and long-term impact 31 these attacks may have in regards to Brooks' suppliers and customers, markets for their products and the U.S. economy are uncertain. There may be other potential adverse effects on Brooks' operating results due to this significant event that Brooks cannot foresee. BROOKS' BUSINESS MAY BE HARMED BY INFRINGEMENT CLAIMS OF ASYST TECHNOLOGIES, INC. Brooks acquired certain assets, including a transport system known as IridNet, from the Infab division of Jenoptik AG on September 30, 1999. Asyst Technologies, Inc. had previously filed suit against Jenoptik AG and other parties (collectively, the "defendants"), claiming that products of the defendants, including IridNet, infringe Asyst's patents. This ongoing litigation may ultimately affect certain products sold by Brooks. Brooks has received notice that Asyst may amend its complaint to name Brooks as an additional defendant. Based on Brooks' investigation of Asyst's allegations, Brooks does not believe it is infringing any claims of Asyst's patents. Brooks intends to continue to support Jenoptik to argue vigorously, among other things, the position that the IridNet system does not infringe the Asyst patents. If Asyst prevails in prosecuting its case, Asyst may seek to prohibit Brooks from developing, marketing and using the Iridnet product without a license. Because patent litigation can be extremely expensive, time-consuming, and its outcome uncertain, Brooks may seek to obtain licenses to the disputed patents. Brooks cannot guarantee that licenses will be available to it on reasonable terms, if at all. If a license from Asyst is not available, Brooks could be forced to incur substantial costs to reengineer the IridNet product, which could diminish its value. In any case, Brooks may face litigation with Asyst. Such litigation could be costly and would divert Brooks management's attention and resources. In addition, if Brooks does not prevail in such litigation, Brooks could be forced to pay significant damages or amounts in settlement. Jenoptik has indemnified Brooks for losses Brooks may incur in this action. RISK FACTORS RELATING TO BROOKS' ACQUISITIONS BROOKS HAS ANNOUNCED A MERGER WITH PRI, AND UNCERTAINTY REGARDING THE MERGER MAY DISRUPT BROOKS' OPERATIONS AND ADVERSELY AFFECT ITS BUSINESS. On October 24, 2001, Brooks announced its proposed merger with PRI Automation, Inc. Brooks cannot guarantee that the merger will occur. The merger will happen only if stated conditions are met, including approval of the issuance of shares in the merger by Brooks' stockholders, approval of the merger by PRI's stockholders, clearance of the merger under United States and foreign antitrust laws, and the absence of any material adverse change in the business of Brooks or PRI. Many of the conditions are outside the control of Brooks and PRI, and both parties also have stated rights to terminate the merger agreement. Accordingly, there may be uncertainty regarding the completion of the merger. This uncertainty may cause customers, suppliers and channel partners to delay or defer decisions concerning Brooks, which could negatively affect its business. Customers, suppliers and channel partners may also seek to change existing agreements with Brooks as a result of the merger. Any delay or deferral of those decisions or changes in existing agreements could have a material adverse effect on Brooks' business, regardless of whether the merger is ultimately completed. Many costs related to the merger, such as legal, accounting, financial advisor and financial printing fees, must be paid by Brooks regardless of whether the merger is completed. If the merger is not completed for any reason, Brooks may be subject to a number of risks, including a decline in the market price of Brooks common stock, to the extent that the relevant current market price reflects a market assumption that the merger will be completed, and substantial disruption to Brooks' business and distraction of its workforce and management team. In addition, employees who are uncertain about their future with the combined company or who do not wish to work for the combined company may seek employment elsewhere, which could impair Brooks' ability to operate its business. BROOKS' BUSINESS COULD BE HARMED IF BROOKS FAILS TO ADEQUATELY INTEGRATE THE OPERATIONS OF THE BUSINESSES IT HAS ACQUIRED. Brooks has completed a number of acquisitions in a short period of time. Brooks' management must devote substantial time and resources to the integration of the operations of its acquired businesses with its core businesses and with each other. If Brooks fails to accomplish this integration efficiently, Brooks may not realize the anticipated benefits of its acquisitions. The process of integrating supply and distribution channels, 32 research and development initiatives, computer and accounting systems and other aspects of the operation of its acquired businesses, presents a significant challenge to Brooks' management. This is compounded by the challenge of simultaneously managing a larger entity. These businesses have operations and personnel located in Asia, Europe and the United States and present a number of additional difficulties of integration, including: - assimilating products and designs into integrated solutions; - informing customers, suppliers and distributors of the effects of the acquisitions and integrating them into Brooks' overall operations; - integrating personnel with disparate business backgrounds and cultures; - defining and executing a comprehensive product strategy; - managing geographically remote units; - managing the risks of entering markets or types of businesses in which Brooks has limited or no direct experience; and - minimizing the loss of key employees of the acquired businesses. If Brooks delays the integration or fails to integrate an acquired business or experiences other unforeseen difficulties, the integration process may require a disproportionate amount of Brooks management's attention and financial and other resources. Brooks' failure to adequately address these difficulties could harm its business and financial results. BROOKS' BUSINESS MAY BE HARMED BY ACQUISITIONS BROOKS COMPLETES IN THE FUTURE. Brooks plans to continue to pursue additional acquisitions of related businesses. Brooks' identification of suitable acquisition candidates involves risks inherent in assessing the values, strengths, weaknesses, risks and profitability of acquisition candidates, including the effects of the possible acquisition on Brooks' business, diversion of Brooks management's attention and risks associated with unanticipated problems or latent liabilities. If Brooks is successful in pursuing future acquisitions, Brooks may be required to expend significant funds, incur additional debt or issue additional securities, which may negatively affect Brooks' results of operations and be dilutive to its stockholders. If Brooks spends significant funds or incurs additional debt, Brooks' ability to obtain financing for working capital or other purposes could decline, and Brooks may be more vulnerable to economic downturns and competitive pressures. Brooks cannot guarantee that it will be able to finance additional acquisitions or that it will realize any anticipated benefits from acquisitions that Brooks completes. Should Brooks successfully acquire another business, the process of integrating acquired operations into Brooks' existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of Brooks' existing businesses. RISK FACTORS RELATING TO BROOKS' COMMON STOCK BROOKS' OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, WHICH COULD NEGATIVELY IMPACT ITS BUSINESS AND ITS STOCK PRICE. Brooks' revenues, margins and other operating results can fluctuate significantly from quarter to quarter depending upon a variety of factors, including: - the level of demand for semiconductors in general; - cycles in the market for semiconductor manufacturing equipment and automation software; - the timing, rescheduling, cancellation and size of orders from Brooks' customer base; - Brooks' ability to manufacture, test and deliver products in a timely and cost-effective manner; - Brooks' success in winning competitions for orders; - the timing of Brooks' new product announcements and releases and those of its competitors; - the mix of products it sells; 33 - the timing of any acquisitions and related costs; - competitive pricing pressures; and - the level of automation required in fab extensions, upgrades and new facilities. Brooks entered the factory automation software business in fiscal 1999. Brooks believes a substantial portion of its revenues from this business will depend on achieving project milestones. As a result, Brooks' revenue from this business will be subject to fluctuations depending upon a number of factors, including whether Brooks can achieve project milestones on a timely basis, if at all, as well as the timing and size of projects. BROOKS' STOCK PRICE IS VOLATILE. The market price of Brooks' common stock has fluctuated widely. For example, between April 4, 2001 and April 30, 2001, the closing price of Brooks' common stock rose from approximately $35.45 to $62.61 per share and between August 28, 2001 and September 28, 2001, the price of Brooks' common stock dropped from approximately $48.15 to $26.59 per share. Consequently, the current market price of Brooks' common stock may not be indicative of future market prices, and Brooks may be unable to sustain or increase the value of an investment in its common stock. Factors affecting Brooks' stock price may include: - variations in operating results from quarter to quarter; - changes in earnings estimates by analysts or Brooks' failure to meet analysts' expectations; - changes in the market price per share of Brooks' public company customers; - market conditions in the industry; - general economic conditions; - low trading volume of Brooks common stock; and - the number of firms making a market in Brooks common stock. In addition, the stock market has recently experienced extreme price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like Brooks. These market fluctuations could adversely affect the market price of Brooks' common stock. BECAUSE A LIMITED NUMBER OF STOCKHOLDERS, INCLUDING A MEMBER OF BROOKS' MANAGEMENT TEAM, OWNS A SUBSTANTIAL NUMBER OF SHARES OF BROOKS COMMON STOCK AND ARE PARTIES TO VOTING AGREEMENTS, THEIR DECISIONS MAY BE DETRIMENTAL TO YOUR INTERESTS. By virtue of their stock ownership and voting agreements, Robert J. Therrien, Brooks' president and chief executive officer, and Jenoptik AG have the power to significantly influence Brooks' affairs and are able to influence the outcome of matters required to be submitted to stockholders for approval, including the election of Brooks' directors, amendments to Brooks' certificate of incorporation, mergers, sales of assets and other acquisitions or sales. These stockholders may exercise their influence over Brooks in a manner detrimental to your interests. As of December 7, 2001, Mr. Therrien and M+W Zander Holding GmbH, a subsidiary of Jenoptik AG, beneficially owned approximately 9.7% of Brooks' common stock. Brooks has a stockholders agreement with Mr. Therrien, M+W Zander Holding GmbH and Jenoptik AG under which M+W Zander Holding GmbH agreed to vote all of its shares on all matters in accordance with the recommendation of a majority of Brooks' board of directors. PROVISIONS OF BROOKS' CERTIFICATE OF INCORPORATION, BYLAWS, CONTRACTS AND 4.75% CONVERTIBLE SUBORDINATED NOTES DUE 2008 MAY DISCOURAGE TAKEOVER OFFERS AND MAY LIMIT THE PRICE INVESTORS WOULD BE WILLING TO PAY FOR BROOKS' COMMON STOCK. Brooks' certificate of incorporation and bylaws contain provisions that may make an acquisition of Brooks more difficult and discourage changes in Brooks' management. These provisions could limit the price that investors might be willing to pay for shares of Brooks' common stock. In addition, Brooks has adopted a shareholder rights plan. In many potential takeover situations, rights issued under the plan become exercisable 34 to purchase Brooks common stock at a price substantially discounted from the then applicable market price of Brooks common stock. Because of its possible dilutive effect to a potential acquirer, the rights plan would generally discourage third parties from proposing a merger with or initiating a tender offer for us that is not approved by Brooks' board of directors. Accordingly, the rights plan could have an adverse impact on Brooks' stockholders who might want to vote in favor of a merger or participate in a tender offer. In addition, Brooks may issue shares of preferred stock upon terms the board of directors deems appropriate without stockholder approval. Brooks' ability to issue preferred stock in such a manner could enable its board of directors to prevent changes in its management or control. Finally, upon a change of control of Brooks, Brooks may be required to repurchase convertible subordinated notes at a price equal to 100% of the principal outstanding amount thereof, plus accrued and unpaid interest, if any, to the date of the repurchase. Such a repurchase of the notes would represent a substantial expense; accordingly, the repayment of the notes upon a change of control of Brooks could discourage third parties from proposing a merger with, initiating a tender offer for or otherwise attempting to gain control of Brooks. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE EXPOSURE Based on Brooks' overall interest exposure at September 30, 2001, including all interest rate-sensitive instruments, a near-term change in interest rates within a 95% confidence level based on historical interest rate movements would not materially affect the consolidated results of operations or financial position. CURRENCY RATE EXPOSURE Brooks' foreign revenues are generally denominated in United States dollars. Accordingly, foreign currency fluctuations have not had a significant impact on the comparison of the results of operations for the periods presented. The costs and expenses of Brooks' international subsidiaries are generally denominated in currencies other than the United States dollar. However, since the functional currency of Brooks' international subsidiaries is the local currency, foreign currency translation adjustments do not impact operating results, but instead are reflected as a component of stockholders' equity under the caption "Accumulated other comprehensive income (loss)". To the extent Brooks expands its international operations or changes its pricing practices to denominate prices in foreign currencies, Brooks will be exposed to increased risk of currency fluctuation. 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Accountants........................... 37 Report of Independent Auditors.............................. 38 Consolidated Balance Sheets as of September 30, 2001 and 2000...................................................... 39 Consolidated Statements of Operations for the three years ended September 30, 2001, 2000 and 1999................... 40 Consolidated Statements of Changes in Stockholders' Equity for the three years ended September 30, 2001, 2000 and 1999...................................................... 41 Consolidated Statements of Cash Flows for the three years ended September 30, 2001, 2000 and 1999................... 42 Notes to Consolidated Financial Statements.................. 44 Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts and Reserves............................................... 70
36 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Brooks Automation, Inc.: In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Brooks Automation, Inc. and its subsidiaries at September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We did not audit the financial statements of Irvine Optical Company LLC, a wholly owned subsidiary acquired through a pooling of interests during the year ended September 30, 2000, which statements reflect total revenues of $11,049,000 for the year ended December 31, 1999. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Irvine Optical Company LLC, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 and the report of other auditors provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts November 14, 2001, except for the first paragraph of Note 15, as to which the date is December 13, 2001. 37 REPORT OF INDEPENDENT AUDITORS To the Members Irvine Optical Company, LLC We have audited the balance sheets of Irvine Optical Company, LLC (the Company) as of December 31, 1999 and 1998, and the related statements of operations, members' deficit, and cash flows for the years then ended (not presented separately herein). 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 audit. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. The financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company's ability to generate sufficient revenue and ultimately achieve profitable operations is uncertain. The Company's future prospects depend upon its ability to demonstrate sustained product sales and to generate sufficient working capital through new financing and/or operating cash flows, all of which raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP March 3, 2000, except for Note 4 as to which the date is March 31, 2000 38 BROOKS AUTOMATION, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, --------------------- 2001 2000 --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets Cash and cash equivalents $160,239 $133,636 Marketable securities 43,593 88,034 Accounts receivable, net, including related party receivables of $32 and $6,820, respectively 93,565 94,756 Inventories 49,295 58,607 Prepaid expenses and other current assets 9,836 8,464 Deferred income taxes 26,608 18,220 -------- -------- Total current assets 383,136 401,717 Property, plant and equipment Buildings and land 31,910 1,573 Computer equipment and software 38,497 23,525 Machinery and equipment 17,349 20,747 Furniture and fixtures 11,240 7,089 Leasehold improvements 10,069 9,226 Construction in progress 11,026 491 -------- -------- 120,091 62,651 Less: Accumulated depreciation and amortization (53,632) (37,499) -------- -------- 66,459 25,152 Long-term marketable securities 125,887 15,000 Intangible assets, net 100,916 60,335 Deferred income taxes 19,280 13,361 Other assets 8,153 4,221 -------- -------- Total assets $703,831 $519,786 ======== ======== LIABILITIES, MINORITY INTERESTS, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY Current liabilities Notes payable $ 17,122 $ 16,000 Revolving line of credit -- 350 Current portion of long-term debt 392 524 Accounts payable 18,595 23,096 Deferred revenue 15,507 17,018 Accrued compensation and benefits 12,835 14,407 Accrued acquisition-related and restructuring costs 3,702 538 Accrued income taxes payable 7,691 9,045 Deferred income taxes 423 143 Accrued expenses and other current liabilities 18,833 13,760 -------- -------- Total current liabilities 95,100 94,881 Long-term debt 175,031 332 Deferred income taxes 6,546 5,064 Accrued long-term restructuring 1,559 -- Other long-term liabilities 664 438 -------- -------- Total liabilities 278,900 100,715 -------- -------- Commitments and contingencies (Note 14) Minority interests 762 1,186 -------- -------- Series A convertible redeemable preferred stock, $0.01 par value -- Authorized, issued and outstanding: none and 90,000 shares in 2001 and 2000, respectively -- 2,601 -------- -------- Stockholders' equity Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Common stock, $0.01 par value, 43,000,000 shares authorized, 18,903,165 and 17,588,911 shares issued and outstanding at September 30, 2001 and 2000, respectively 189 176 Additional paid-in capital 471,991 433,249 Deferred compensation (5) (35) Accumulated other comprehensive loss (2,586) (2,942) Accumulated deficit (45,420) (15,164) -------- -------- Total stockholders' equity 424,169 415,284 -------- -------- Total liabilities, minority interests, convertible redeemable preferred stock and stockholders' equity $703,831 $519,786 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 39 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, --------------------------------------- 2001 2000 1999 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues Product, including related party revenues of $13,966, $36,934 and $15,255, respectively $291,727 $284,366 $101,488 Services 89,989 52,818 21,469 -------- -------- -------- Total revenues 381,716 337,184 122,957 -------- -------- -------- Cost of revenues Product 166,471 141,088 54,239 Services 62,861 35,371 13,566 -------- -------- -------- Total cost of revenues 229,332 176,459 67,805 -------- -------- -------- Gross profit 152,384 160,725 55,152 -------- -------- -------- Operating expenses Research and development 60,868 44,147 24,526 Selling, general and administrative 95,919 77,410 38,763 Amortization of acquired intangible assets 30,187 18,506 565 Acquisition-related and restructuring charges 9,314 578 3,120 -------- -------- -------- Total operating expenses 196,288 140,641 66,974 -------- -------- -------- Income (loss) from operations (43,904) 20,084 (11,822) Interest income 12,534 9,707 3,150 Interest expense 4,063 1,345 1,553 Other expense, net (1,090) (2) (223) -------- -------- -------- Income (loss) before income taxes and minority interests (36,523) 28,444 (10,448) Income tax provision (benefit) (6,439) 13,609 (874) -------- -------- -------- Income (loss) before minority interests (30,084) 14,835 (9,574) Minority interests in loss of consolidated subsidiaries (424) (274) (40) -------- -------- -------- Net income (loss) (29,660) 15,109 (9,534) Accretion and dividends on preferred stock (90) (120) (774) -------- -------- -------- Net income (loss) attributable to common stockholders $(29,750) $ 14,989 $(10,308) ======== ======== ======== Earnings (loss) per share Basic $ (1.65) $ 0.96 $ (0.89) Diluted $ (1.65) $ 0.88 $ (0.89) Shares used in computing earnings (loss) per share Basic 18,015 15,661 11,542 Diluted 18,015 17,192 11,542
The accompanying notes are an integral part of these consolidated financial statements. 40 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NONREDEEMABLE COMMON CONVERTIBLE ADDITIONAL COMMON STOCK STOCK AT PREFERRED PAID-IN DEFERRED COMPREHENSIVE SHARES PAR VALUE STOCK CAPITAL COMPENSATION INCOME (LOSS) ------------ --------- ------------- ---------- ------------ ------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) BALANCE SEPTEMBER 30, 1998 11,357,510 $113 $ 6,467 $131,551 $(119) Shares issued under stock option and purchase plans 341,877 4 -- 1,679 -- Common stock issued in acquisitions 1,410,926 14 (6,467) 35,594 -- Amortization of deferred compensation -- -- -- 54 Accretion and dividends on preferred stock -- -- -- -- Revaluation of members' capital -- -- -- -- Income tax benefit from stock options -- -- 130 -- Comprehensive loss: Net loss -- -- -- -- $ (9,534) Currency translation adjustments -- -- -- -- (557) -------- Comprehensive loss -- -- -- -- $(10,091) ======== Elimination of Smart Machines net loss attributable to common stockholders for the three months ended December 31, 1998 -- -- -- -- ---------- ---- ------- -------- ----- BALANCE SEPTEMBER 30, 1999 13,110,313 131 -- 168,954 (65) Shares issued under stock option and purchase plans 558,195 6 -- 5,418 -- Common stock offering 3,070,500 31 -- 220,445 -- Common stock issued in acquisitions 849,903 8 -- 21,829 -- Amortization of deferred compensation -- -- -- 30 Accretion and dividends on preferred stock -- -- -- -- Income tax benefit from stock options -- -- 6,738 -- Income tax benefit from acquisitions -- -- 9,865 -- Comprehensive income: Net income -- -- -- -- $ 15,109 Currency translation adjustments -- -- -- -- (1,849) -------- Comprehensive income -- -- -- -- $ 13,260 ======== Elimination of Irvine Optical net income for the three months ended December 31, 1999 -- -- -- -- ---------- ---- ------- -------- ----- BALANCE SEPTEMBER 30, 2000 17,588,911 176 -- 433,249 (35) Shares issued under stock option and purchase plans and exercise of warrants 470,239 5 -- 9,079 -- Common stock issued in acquisitions 844,015 8 -- 25,968 -- Amortization of deferred compensation -- -- -- 30 Accretion and dividends on preferred stock -- -- -- -- Income tax benefit from stock options -- -- 3,695 -- Comprehensive loss: Net loss -- -- -- -- $(29,660) Currency translation adjustments -- -- -- -- 356 -------- Comprehensive loss -- -- -- -- $(29,304) ======== Elimination of Progressive Technologies net income attributable to common stockholders for the three months ended December 31, 2000 -- -- -- -- ---------- ---- ------- -------- ----- BALANCE SEPTEMBER 30, 2001 18,903,165 $189 $ -- $471,991 $ (5) ========== ==== ======= ======== ===== ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED INCOME (LOSS) DEFICIT TOTAL ------------- ----------- -------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) BALANCE SEPTEMBER 30, 1998 $ (536) $(21,682) $115,794 Shares issued under stock option and purchase plans -- -- 1,683 Common stock issued in acquisitions -- -- 29,141 Amortization of deferred compensation -- -- 54 Accretion and dividends on preferred stock -- (774) (774) Revaluation of members' capital -- 377 377 Income tax benefit from stock options -- -- 130 Comprehensive loss: Net loss -- (9,534) (9,534) Currency translation adjustments (557) -- (557) Comprehensive loss -- -- -- Elimination of Smart Machines net loss attributable to common stockholders for the three months ended December 31, 1998 -- 1,599 1,599 ------- -------- -------- BALANCE SEPTEMBER 30, 1999 (1,093) (30,014) 137,913 Shares issued under stock option and purchase plans -- -- 5,424 Common stock offering -- -- 220,476 Common stock issued in acquisitions -- -- 21,837 Amortization of deferred compensation -- -- 30 Accretion and dividends on preferred stock -- (120) (120) Income tax benefit from stock options -- -- 6,738 Income tax benefit from acquisitions -- -- 9,865 Comprehensive income: Net income -- 15,109 15,109 Currency translation adjustments (1,849) -- (1,849) Comprehensive income -- -- -- Elimination of Irvine Optical net income for the three months ended December 31, 1999 -- (139) (139) ------- -------- -------- BALANCE SEPTEMBER 30, 2000 (2,942) (15,164) 415,284 Shares issued under stock option and purchase plans and exercise of warrants -- -- 9,084 Common stock issued in acquisitions -- -- 25,976 Amortization of deferred compensation -- -- 30 Accretion and dividends on preferred stock -- (90) (90) Income tax benefit from stock options -- -- 3,695 Comprehensive loss: Net loss -- (29,660) (29,660) Currency translation adjustments 356 -- 356 Comprehensive loss -- -- -- Elimination of Progressive Technologies net income attributable to common stockholders for the three months ended December 31, 2000 -- (506) (506) ------- -------- -------- BALANCE SEPTEMBER 30, 2001 $(2,586) $(45,420) $424,169 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 41 BROOKS AUTOMATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, -------------------------------- 2001 2000 1999 --------- --------- -------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (29,660) $ 15,109 $ (9,534) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 45,041 30,400 11,766 Compensation expense related to common stock options 30 30 54 Deferred income taxes (14,050) (8,801) (3,017) Amortization of debt discount 214 -- -- Minority interests (424) (274) (40) (Gain) loss on disposal of long-lived assets 1,524 (142) -- Changes in operating assets and liabilities: Accounts receivable 8,425 (50,655) (5,799) Inventories 10,529 (27,981) (2,321) Prepaid expenses and other current assets (760) (7,702) 1,054 Accounts payable (5,514) 12,779 7,038 Deferred revenue (3,743) 8,385 1,763 Accrued compensation and benefits (3,318) 9,684 858 Accrued acquisition-related and restructuring costs 4,723 (680) 1,724 Accrued expenses and other current liabilities 7,668 8,641 1,638 --------- --------- -------- Net cash provided by (used in) operating activities 20,685 (11,207) 5,184 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (53,652) (13,879) (6,100) Acquisition of businesses, net of cash acquired (33,142) (24,399) (4,476) Purchases of marketable securities (181,402) (118,034) -- Sale/maturity of marketable securities 114,956 15,000 -- Proceeds from sale of long-lived assets 224 735 -- Increase in other assets (728) (1,550) (732) --------- --------- -------- Net cash used in investing activities (153,744) (142,127) (11,308) --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net (repayments of) borrowings under lines of credit and revolving credit facilities (350) (1) 1,253 Net decrease in short-term borrowings (16,000) (5,263) (280) Proceeds from issuance of convertible notes, net of issuance costs 169,543 -- -- Payments of long-term debt and capital lease obligations (490) (562) (1,183) Issuance of long-term debt -- -- 1,154 Proceeds from issuance of common stock, net of issuance costs 9,106 225,900 1,683 --------- --------- -------- Net cash provided by financing activities 161,809 220,074 2,627 --------- --------- -------- Elimination of net cash activities on pooling of interest transactions (1,119) 14 (63) --------- --------- -------- Effects of exchange rate changes on cash and cash equivalents (1,028) (149) 326 --------- --------- -------- Net increase (decrease) in cash and cash equivalents 26,603 66,605 (3,234) Cash and cash equivalents, beginning of year 133,636 67,031 70,265 --------- --------- -------- Cash and cash equivalents, end of year $ 160,239 $ 133,636 $ 67,031 ========= ========= ========
42
YEAR ENDED SEPTEMBER 30, -------------------------------- 2001 2000 1999 --------- --------- -------- (IN THOUSANDS) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 193 $ 1,432 $ 1,166 Cash paid during the year for income taxes, net of refunds $ 5,876 $ 10,450 $ 1,085 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES Accretion and dividends on preferred stock $ 90 $ 120 $ 774 The Company utilized available funds, issued common stock and issued notes in connection with certain business combinations during the years ended September 30, 2001, 2000 and 1999. The fair values of the assets and liabilities of the acquired companies are presented as follows: Assets acquired $ 11,682 $ 14,166 $ 30,218 Liabilities assumed (9,585) (17,364) (8,414) --------- --------- -------- Net assets acquired (liabilities assumed) $ 2,097 $ (3,198) $ 21,804 ========= ========= ======== The acquisitions were funded as follows: Cash consideration $ 33,274 $ 27,300 $ 10,447 Common stock 23,363 15,027 22,473 Notes issued to sellers 16,906 16,000 -- Transaction costs 1,665 2,874 1,891 Cash received (1,797) (5,775) (7,862) --------- --------- -------- $ 73,411 $ 55,426 $ 26,949 ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 43 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF THE BUSINESS Brooks Automation, Inc. ("Brooks" or the "Company") is a leading supplier of integrated tool automation, factory interface and factory automation solutions for the global semiconductor and related industries such as the data storage and flat panel display manufacturing industries. The Company's product revenues include sales of hardware and software products. The Company's service revenues are primarily comprised of tool control application consulting services, software customization and spare parts sales. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated. On July 12, 2001, the Company acquired Progressive Technologies, Inc. ("PTI") in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001. Accordingly, the Company's consolidated financial statements and notes thereto have been restated to include the financial position and results of operations of PTI for all periods prior to the acquisition. Prior to its acquisition by the Company, PTI's fiscal year-end was December 31. Accordingly, the Company's consolidated balance sheet as of September 30, 2000, includes PTI's balance sheet as of December 31, 2000, and the Company's consolidated statements of operations for the years ended September 30, 2000 and 1999 include PTI's results of operations for the years ended December 31, 2000 and 1999, respectively. As a result of conforming dissimilar year-ends, PTI's results of operations for the three months ended December 31, 2000, are included in both of the Company's fiscal years 2001 and 2000. An amount equal to PTI's net income for the three months ended December 31, 2000 was eliminated from consolidated accumulated deficit for the year ended September 30, 2001. PTI's revenues, net income and net income attributable to common shareholders for that quarter were $3.8 million, $536,000 and $506,000, respectively. On June 26, 2001, the Company completed the purchase of KLA-Tencor, Inc.'s e-Diagnostics product business ("e-Diagnostics"). The e-Diagnostics programs enable service and support teams to remotely access their tools in customer fabs in real-time to diagnose and resolve problems. On June 25, 2001, the Company acquired CCS Technology, Inc. ("CCST"), a supplier of 300mm automation test and certification software located in Williston, Vermont. On May 15, 2001, the Company acquired SimCon N.V. ("SimCon"), a value-added reseller for the Company's simulation, scheduling, production analysis and dispatching software headquartered in Belgium. On February 16, 2001, the Company acquired SEMY Engineering, Inc. ("SEMY"), a provider of advanced process and equipment control systems for the semiconductor industry located in Phoenix, Arizona. On December 13, 2000, the Company acquired substantially all of the assets of a scheduling and simulation software and service distributor in Japan. These transactions were recorded using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16"). Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows for the year ended September 30, 2001 include the results of these acquired entities for the periods subsequent to their respective acquisitions. On May 5, 2000, the Company completed the acquisition of Irvine Optical Company LLC ("Irvine Optical") in a transaction accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Irvine Optical are included in the Company's consolidated results for all periods presented. Prior to its acquisition by the Company, Irvine Optical's fiscal year-end was December 31. As a result of conforming dissimilar year-ends, Irvine Optical's results of operations for the three months ended December 31, 1999, are included in both of the Company's fiscal years 2000 and 1999. An amount equal to Irvine Optical's net income for the three months ended December 31, 1999, was eliminated from consolidated 44 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accumulated deficit for the year ended September 30, 2000. Irvine Optical's revenues and net income for that quarter were $4.1 million and $0.1 million, respectively. The Company completed two acquisitions during fiscal year 2000 which were accounted for using the purchase method of accounting in accordance with APB 16: MiTeX Solutions ("MiTeX") on June 23, 2000 and Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") on January 6, 2000. The Company's Consolidated Statements of Operations and of Cash Flows include the results of these entities for the periods subsequent to their respective acquisitions. On August 31, 1999, the Company completed the acquisition of Smart Machines Inc. ("Smart Machines"). The acquisition was accounted for as a pooling of interests. Accordingly, the results of operations and financial position of Smart Machines are included in the Company's consolidated results for all periods presented. The Company completed three acquisitions during the year ended September 30, 1999, which were accounted for using the purchase method of accounting in accordance with APB 16: the Infab Division ("Infab") of Jenoptik AG on September 30, 1999; Domain Manufacturing Corporation ("Domain") on June 30, 1999 and Hanyon Technology, Inc. ("Hanyon") on April 21, 1999. Accordingly, the Company's Consolidated Statements of Operations and of Cash Flows include the results of these acquired entities for all periods subsequent to their respective acquisitions. In June 1999, the Company formed a joint venture in Korea. This joint venture is 70% owned by the Company and 30% owned by third parties unaffiliated with the Company. The Company consolidates fully the financial position and results of operations of the joint venture and accounts for the minority interests in the consolidated financial statements. Certain amounts in previously issued financial statements have been reclassified to conform to current presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include revenues and costs under long-term contracts, collectibility of accounts receivable, obsolescence of inventory, recoverability of depreciable assets, intangibles and deferred tax assets and the adequacy of acquisition-related and restructuring reserves. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. FOREIGN CURRENCY TRANSLATION For non-U.S. subsidiaries, which operate in a local currency environment, assets and liabilities are translated at period-end exchange rates, and income statement items are translated at the average exchange rates for the period. The local currency for all foreign subsidiaries is considered to be the functional currency and accordingly, translation adjustments are reported in "Accumulated other comprehensive income (loss)." To date, foreign currency translation adjustments are the only component added to the Company's net income (loss) in the calculation of comprehensive net income (loss). 45 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and highly liquid investments with original maturities to the Company of three months or less. At both September 30, 2001 and 2000, all cash equivalents were classified as available-for-sale and held at amortized cost, which approximates fair value. MARKETABLE SECURITIES The Company invests its excess cash in marketable debt securities and records them as available-for-sale. The Company records these securities at fair value in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"). For all periods presented, unrealized gains and losses are immaterial. Marketable securities reported as current assets represent investments that mature within one year. Long-term marketable securities represent investments with maturity dates greater than one year from the balance sheet date. At the time that the maturity dates of these investments become one year or less, the values will be reclassified to current assets. At September 30, 2001, the Company's marketable securities were comprised entirely of corporate debt securities aggregating $169.5 million, with maturities to the Company not exceeding three years. At September 30, 2000, the Company's marketable securities were comprised of U.S. Government securities aggregating $53.3 million and corporate debt securities aggregating $49.7 million. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade receivables and temporary and long-term cash investments in treasury bills, certificates of deposit and commercial paper. The Company restricts its investments to repurchase agreements with major banks, U.S. government and corporate securities, and mutual funds that invest in U.S. government securities, which are subject to minimal credit and market risk. The Company's customers are concentrated in the semiconductor industry, and relatively few customers account for a significant portion of the Company's revenues. The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses. INVENTORIES Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. The Company provides inventory reserves for excess, obsolete or damaged inventory based on changes in customer demand, technology and other economic factors. While the Company often uses sole source suppliers for certain key components and common assemblies to achieve quality control and the benefits of economies of scale, the Company believes that these parts and materials are readily available from other supply sources. FIXED ASSETS Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. Depreciable lives are summarized below: Buildings 20 - 40 years Computer equipment and software 2 - 6 years Machinery and equipment 2 - 10 years Furniture and fixtures 3 - 10 years
Equipment held under capital leases is recorded at the fair market value of the equipment at the inception of the leases. Leasehold improvements and equipment held under capital leases are amortized over the shorter 46 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of their estimated useful lives or the term of the respective leases. Equipment used for demonstrations to customers is included in machinery and equipment and is depreciated over its estimated useful life. Repair and maintenance costs are expensed as incurred. The Company periodically evaluates the recoverability of long-lived assets, including intangibles, whenever events and changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present, the carrying values of the asset are evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. INTANGIBLE ASSETS Patents include capitalized direct costs associated with obtaining patents as well as assets that were acquired as a part of purchase business combinations. Capitalized patent costs are amortized using the straight-line method over the shorter of seven years or the estimated economic life of the patents. The fair values of acquired patents are amortized over three to five years using the straight-line method. As of September 30, 2001 and 2000, the net book values of the Company's patents were $2.2 million and $4.1 million, respectively. Costs incurred in the research and development of the Company's products are expensed as incurred, except for certain software development costs. Software development costs are expensed prior to establishing technological feasibility and capitalized thereafter until the product is available for general release to customers. Capitalized software development costs are amortized to cost of sales on a product-by-product basis over the estimated lives of the related products, typically three years. As of September 30, 2001, the Company's capitalized software costs had been fully amortized and written off. As of September 30, 2000, the net book value of the Company's capitalized software costs were $0.6 million. Goodwill represents the excess of purchase price over the fair value of net tangible and identifiable intangible assets of businesses the Company has acquired and has accounted for under the purchase method in accordance with APB 16. As of September 30, 2001 and 2000, the net book values of goodwill were $60.1 million and $43.4 million, respectively. Amortization expense for all intangible assets was $31.6 million, $19.6 million and $1.4 million for the years ended September 30, 2001, 2000 and 1999, respectively. The amortizable lives of intangible assets, including those identified as a result of purchase accounting, are summarized as follows: Patents 3 - 7 years Completed technology 4 - 5 years License agreements 5 years Trademarks and trade names 2 - 5 years Non-competition agreements 3 - 5 years Assembled workforces 3 - 4 years Customer relationships 4 years Goodwill 3 - 15 years
47 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company has adopted the recommendations of Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements," ("SAB 101") effective October 1, 2000. The adoption of SAB 101 did not have any impact on the Company's results of operations or financial position. Revenue from product sales are recorded upon transfer of title and risk of loss to the customer provided there is evidence of an arrangement, fees are fixed or determinable, no significant obligations remain, collection of the related receivable is reasonably assured and customer acceptance criteria have been successfully demonstrated. Revenue from software licenses is recorded provided there is evidence of an arrangement, fees are fixed or determinable, no significant obligations remain, collection of the related receivable is reasonably assured and customer acceptance criteria have been successfully demonstrated. Costs incurred for shipping and handling are included in cost of sales. A provision for product warranty costs is recorded to estimate costs associated with such warranty liabilities. In the event significant post-shipment obligations or uncertainties remain, revenue is deferred and recognized when such obligations are fulfilled by the Company or the uncertainties are resolved. Revenue from services is recognized as the services are rendered. Revenue from fixed fee application consulting contracts and long-term contracts are recognized using the percentage-of-completion method of contract accounting based on the ratio that costs incurred to date bear to estimated total costs at completion. Revisions in revenue and cost estimates are recorded in the periods in which the facts that require such revisions become known. Losses, if any, are provided for in the period in which such losses are first identified by management. Generally, the terms of long-term contracts provide for progress billing based on completion of certain phases of work. For maintenance contracts, service revenue is recognized ratably over the term of the maintenance contract. In transactions that include multiple products and/or services, the Company allocates the sales value among each of the deliverables based on their relative fair values. STOCK-BASED COMPENSATION The Company's employee stock compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related interpretations. Under this method, no compensation expense is recognized as long as the exercise price equals or exceeds the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS 123") for fixed stock-based awards to employees. All non- employee stock-based awards are accounted for in accordance with FAS 123. INCOME TAXES Deferred income tax assets and liabilities are recognized for the expected future tax consequences, utilizing current tax rates, of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for the estimated future tax effects of deductible temporary differences and tax operating loss and credit carryforwards. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares and dilutive common equivalent shares assumed outstanding during the period. Shares used to compute diluted earnings per share exclude common share equivalents if their inclusion would have an anti-dilutive effect. 48 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, investments in long- and short-term debt securities, accounts receivable, accounts payable, accrued expenses and long- and short-term debt. The carrying amounts reported in the balance sheets approximate their fair values at both September 30, 2001 and 2000. RECENT ACCOUNTING PRONOUNCEMENTS In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS 144 supercedes FASB Statement No. 121 ("FAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." FAS 144 applies to all long-lived assets and consequently amends Accounting Principles Board Opinion No. 30 ("APB 30"), "Reporting Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management is currently evaluating the effect, if any, FAS 144 will have on its financial position and results of operations. In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 ("FAS 141"), "Business Combinations" and No. 142 ("FAS 142"), "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. FAS 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. FAS 142 requires that goodwill and identifiable intangible assets determined to have an indefinite life no longer be amortized, but instead be tested for impairment at least annually. The Company is required to adopt FAS 142 in the fiscal year beginning October 1, 2002, at which time amortization of goodwill on purchase transactions prior to July 1, 2001 will cease. The application of the separate recognition criteria for intangible assets and the cessation of amortization of goodwill and result in goodwill of approximately $67 million at September 30, 2001 being subject to an annual impairment test, unless interim indicators indicate a need for an interim test, and a resulting reduction of goodwill amortization expense of approximately $32 million, $22 million and $11 million in fiscal 2002, 2003 and 2004, respectively. 3. BUSINESS ACQUISITIONS POOLING OF INTERESTS TRANSACTIONS PTI On July 12, 2001, the Brooks acquired PTI in a transaction accounted for as a pooling of interests initiated prior to June 30, 2001 in exchange for 715,004 shares of the Company's common stock. The acquisition has been accounted for as a pooling of interests. PTI is engaged in the development, production and distribution of air-flow regulation systems for clean room and process equipment in the semiconductor industry. The accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations for PTI for all periods prior to the acquisition. As a result of conforming dissimilar year-ends, PTI's results of operations for the three months ended December 31, 2000, are included in both of the Company's fiscal years 2001 and 2000. Accordingly, an amount equal to PTI's net income for the three months ended December 31, 2000, was eliminated from consolidated retained earnings for the year ended September 30, 2001. PTI's revenues, net income and net income attributable to common stockholders for that quarter were $3.8 million, $536,000 and $506,000, respectively. 49 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Irvine Optical On May 5, 2000, the Company acquired Irvine Optical in exchange for 309,013 shares of Brooks common stock. The acquisition was accounted for as a pooling of interests. Irvine Optical is engaged principally in the design, engineering and manufacturing of wafer handling and inspection equipment for sale primarily to the semiconductor industry. In connection with this acquisition, the Company incurred $0.6 million of costs, consisting primarily of transaction costs to effect the acquisition. The accompanying consolidated financial statements and notes thereto have been restated to include the financial position and results of operations for Irvine Optical for all periods prior to the acquisition. As a result of conforming dissimilar year-ends, Irvine Optical's results of operations for the three months ended December 31, 1999, are included in both of the Company's fiscal years 2000 and 1999. Accordingly, an amount equal to Irvine Optical's net income for the three months ended December 31, 1999, was eliminated from consolidated retained earnings for the year ended September 30, 2000. Irvine Optical's revenues and net income for that quarter were $4.1 million and $0.1 million, respectively. The results of operations previously reported by the separate companies prior to their respective acquisitions and the combined amounts presented in the accompanying Consolidated Statements of Operations are as follows (in thousands):
NINE MONTHS SIX MONTHS ENDED ENDED YEAR ENDED SEPTEMBER 30, JUNE 30, MARCH 31, ------------------------ 2001 2000 2000 1999 ----------- ----------- ---------- ---------- (UNAUDITED) (UNAUDITED) Revenues Brooks Automation, Inc. $310,085 $123,290 $310,436 $103,906 Irvine Optical LLC -- 10,663 10,663 11,049 Progressive Technologies, Inc. 10,107 7,222 16,085 8,002 -------- -------- -------- -------- $320,192 $141,175 $337,184 $122,957 ======== ======== ======== ======== Net income (loss) Brooks Automation, Inc. $ 2,580 $ 4,317 $ 12,193 $ (7,884) Irvine Optical LLC -- 560 560 (1,958) Progressive Technologies, Inc. 861 984 2,356 308 -------- -------- -------- -------- $ 3,441 $ 5,861 $ 15,109 $ (9,534) ======== ======== ======== ========
Smart Machines On August 31, 1999, the Company acquired Smart Machines and issued 496,640 shares of common stock in exchange for all of the outstanding common and preferred shares of Smart Machines. The transaction was accounted for as a pooling of interests. Smart Machines is located in San Jose, California, and manufactures direct drive Selectively Compliant Assembly Robot Arm ("SCARA") atmospheric and vacuum robots. In connection with this acquisition, the Company incurred $1.2 million of costs, consisting primarily of transaction costs to affect the acquisition. As a result of conforming dissimilar year-ends, Smart Machines' results of operations for the three months ended December 31, 1998, are included in both of the Company's fiscal years 1999 and 1998. Accordingly, an amount equal to Smart Machines' net loss applicable to common stockholders for the three months ended December 31, 1998, was eliminated from supplementary consolidated retained earnings for the year ended September 30, 1999. Smart Machines' revenues, net loss and net loss applicable to common stockholders for that quarter were $0.2 million, $1.4 million and $1.6 million, respectively. 50 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PURCHASE TRANSACTIONS e-Diagnostics On June 26, 2001, the Company completed the purchase of KLA-Tencor's e-Diagnostics product business. The e-Diagnostics programs enable service and support teams to remotely access their tools in customer fabs in real-time to diagnose and resolve problems. The acquisition was recorded using the purchase method of accounting in accordance with APB 16. In consideration, the Company issued 331,153 shares of Brooks common stock with a market value of $16.0 million at the time of issuance, and issued a $17.0 million one-year, interest-free note payable to the selling stockholders. The note is payable in cash or common stock, or any combination thereof, at the Company's discretion. In addition, the Company issued 50,000 shares of its common stock, with certain trading restrictions, to employees of the acquired business. These shares had a market value of $2.2 million at the time of issuance. There is also purchase consideration of up to $8.0 million in the aggregate over the next three years, contingent upon meeting certain performance objectives. The contingent consideration will be recorded as an addition to the purchase price at the time it becomes probable that a payment will be required and the amount can be reasonably estimated. In addition, there is also the potential for royalty payments by the Company to KLA-Tencor over the next four years, contingent upon meeting certain revenue levels. The royalties will be recorded as costs of sales as earned. The contingent consideration and royalties are payable in cash or Brooks common stock, or any combination thereof, at the Company's discretion. At September 30, 2001, no amounts had been paid or were due under the royalty or contingent consideration arrangements. A portion of the excess of purchase price over fair value of net assets acquired was allocated to certain identifiable intangible assets. The balance of the excess was recorded as goodwill. The allocation of the $34.1 million of excess purchase price over the fair value of net tangible assets acquired to specific intangible assets and their estimated useful lives is as follows (dollars in thousands):
ESTIMATED ALLOCATION USEFUL LIFE ---------- ----------- Completed technology $ 7,890 5 years Assembled workforces 1,130 4 years Goodwill 25,118 3 years ------- $34,138 =======
The intangible assets are being amortized using the straight-line method. Pro forma results of operations are not presented as the amounts are not material compared to the Company's historical results. CCST On June 25, 2001, the Company acquired CCST, a supplier of 300mm automation test and certification software located in Williston, Vermont. The acquisition was recorded using the purchase method of accounting in accordance with APB 16. In consideration, the Company paid $1.2 million of cash and issued 78,475 shares of Brooks common stock with a market value of $4.0 million at the time of issuance. A portion of the excess of purchase price over fair value of net liabilities assumed was allocated to certain identifiable intangible assets. The balance of the excess was recorded as goodwill. The allocation of the 51 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $7.4 million of excess purchase price over the fair value of net liabilities assumed to specific intangible assets and their estimated useful lives is as follows (dollars in thousands):
ESTIMATED ALLOCATION USEFUL LIFE ---------- ----------- Completed technology $4,580 4 years Trademarks and trade names 60 2 years Assembled workforces 480 4 years Goodwill 2,235 3 years ------ $7,355 ======
The intangible assets are being amortized using the straight-line method. Pro forma results of operations are not presented as the amounts are not material compared to the Company's historical results. SimCon On May 15, 2001, Brooks acquired SimCon, a privately-held value-added reseller for the Company's simulation, scheduling, production analysis and dispatching software, headquartered in Belgium. The acquisition was recorded using the purchase method of accounting in accordance with APB 16. In consideration, the Company paid $1.1 million of cash, issued 13,741 shares of Brooks common stock with a market value of $750,000 at the time of issuance and provided for additional purchase consideration of up to $900,000 in the aggregate through September 2002, contingent upon meeting certain performance objectives. The contingent consideration will be recorded as an addition to purchase price at the time it becomes probable that a payment will be required and the amount can be reasonably estimated. In addition, the Company issued an interest-free note payable to the selling stockholders for shares of Brooks common stock with a market value of $750,000, due one year from the transaction closing date. The Company has discounted and recorded the note payable at 4.75%, to $714,375, for accounting purposes and is amortizing the resulting discount to interest expense through the note's maturity date. The number of shares to be issued will be based upon the market value of the Company's common stock at the time of maturity. The excess of purchase price over net tangible assets acquired of $2.1 million has been recorded as goodwill and will be amortized over three years using the straight-line method. Pro forma results of operations are not presented for the SimCon acquisition as the amounts are not material compared to the Company's historical results. At September 30, 2001 there were no amounts earned or due under contingent consideration. SEMY On February 16, 2001, the Company acquired SEMY, a wholly owned subsidiary of Semitool, Inc. SEMY, located in Phoenix, Arizona, is a provider of advanced process and equipment control systems for the semiconductor industry. In consideration, the Company paid $36.0 million cash and issued 73,243 shares of Brooks common stock with a market value of $2.7 million at the time of issuance. The transaction was recorded using the purchase method of accounting in accordance with APB 16. A portion of the excess of purchase price over fair value of net assets acquired was allocated to certain identifiable intangible assets based on the report of an independent appraiser. The balance of the excess was 52 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recorded as goodwill. The allocation of the $33.6 million of excess purchase price over the fair value of net assets acquired to specific intangible assets and their estimated useful lives is as follows (dollars in thousands):
ESTIMATED ALLOCATION USEFUL LIFE ---------- ----------- Patents $ 300 5 years Completed technology 14,600 5 years Trademarks and trade names 700 5 years Non-competition agreements 1,100 3 years Assembled workforces 3,100 4 years Goodwill 13,808 3 years ------- $33,608 =======
The assets are being amortized using the straight-line method. ASI-Japan On December 13, 2000, the Company acquired substantially all of the assets of the business unit which acts as a distributor for ASI's software products ("ASI-Japan"), from Daifuku Co., Ltd. of Japan ("Daifuku"). The ASI-Japan business unit provides direct sales and support for ASI's integrated factory automation solutions to simulation and scheduling customers in Japan. In consideration, the Company paid $1.1 million cash. The transaction was recorded using the purchase method of accounting in accordance with APB 16. The estimate of the excess of purchase price over net assets acquired of $1.1 million was recorded as goodwill and is being amortized over three years using the straight-line method. Pro forma results of operations are not presented for the ASI-Japan acquisition as the amounts are immaterial compared to the Company's historical results. MiTeX On June 23, 2000, the Company acquired substantially all of the assets of MiTeX. MiTeX, located in Canton, Michigan, provides run-to-run controller technology. In consideration, the Company paid $300,000 cash, 5,486 shares of Brooks common stock with a market value of $0.3 million at the time of issuance and the potential for an additional amount ("royalties") of up to $5.0 million in the aggregate over the next five years. The royalties are calculated at the end of each fiscal year based on net revenue and gross margin performance of the MiTeX business unit. These royalties will be recorded to Cost of product revenues in the year that the costs are incurred. Amounts recorded to Cost of product revenues in the years ended September 30, 2001 and 2000 were immaterial. The acquisition was accounted for using the purchase method of accounting in accordance with APB 16. ASC/ASI On January 6, 2000, the Company completed the acquisition of the businesses of ASC and ASI from Daifuku America. ASC is a material handling software and systems integration company focusing on manufacturing and distribution of logistic systems for the semiconductor industry. ASI develops, markets and sells robotic and material handling simulation, scheduling and real time dispatching software for the semiconductor industry. At closing, the Company paid $27.0 million in cash, issued 535,404 shares of Brooks common stock with a value of $14.7 million and issued a $16.0 million promissory note payable in one year, bearing interest at a rate of 4.0% per annum. The note was discharged on January 5, 2001. The acquisition was accounted for using the purchase method of accounting in accordance with APB 16. 53 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The excess of purchase price over the fair value of net liabilities assumed and identifiable intangible assets was recorded based upon analyses of their fair values by an independent appraiser. The balance of the excess was recorded as goodwill. In January 2001, the Company received $0.9 million of cash from the selling stockholders as settlement for the shortfall in the net asset values acquired. The Company recorded the cash receipt with a corresponding reduction to acquired intangible assets. Infab On September 30, 1999, the Company acquired certain assets of Infab in exchange for 868,572 shares of Brooks common stock in a purchase transaction. Infab is a worldwide supplier of advanced factory automation systems headquartered in Germany. The assets purchased principally included fixed assets, inventory, receivables, patents and intellectual property. As part of the preliminary purchase price allocation recorded at September 30, 1999, the Company had established an accrual of $2.7 million related primarily to severance costs and costs to exit certain duplicate facilities. During the year ended September 30, 2000, review of these accruals determined that the accruals were not required due to changed conditions and circumstances subsequent to the preliminary purchase price allocation. Accordingly, these accruals were reversed and recorded as a purchase accounting adjustment to decrease goodwill. Additionally, during the year ended September 30, 2000, the Company finalized its evaluation of the fair value of assets acquired and liabilities assumed. This evaluation resulted in a reduction to the value of net tangible assets acquired of $7.1 million, primarily related to inventories and accounts receivable, and resulting in an increase to goodwill for the same amount. As settlement of this shortfall during fiscal 2001, the Company received $5.1 million of cash from the sellers and recorded a corresponding reduction to acquired intangible assets. In addition, the Company adjusted goodwill by $1.1 million in the year ended September 30, 2001 in relation to 45,714 shares of its common stock which had been held in escrow pending the post-closing review of the assets purchased. The following pro forma results of operations have been prepared as though the acquisitions of SEMY and of ASC and ASI had occurred as of the beginning of the fiscal year in which the respective acquisitions occurred. Pro forma results of the other companies acquired during the years ended September 30, 2001 and 2000 were not material compared to the Company's historical results. This pro forma financial information does not purport to be indicative of the results of operations that would have been attained had the acquisitions been made as of the beginning of the periods presented or of results of operations that may occur in the future (in thousands, except per share data):
YEAR ENDED SEPTEMBER 30, ------------------- 2001 2000 -------- -------- (UNAUDITED) Revenues $389,637 $362,474 Net income (loss) $(31,321) $ 5,181 Net income (loss) attributable to common stockholders $(31,411) $ 5,061 Net income (loss) per share attributable to common stockholders $ (1.74) $ 0.28
54 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. EARNINGS (LOSS) PER SHARE Below is a reconciliation of earnings (loss) per share and weighted average common shares outstanding for purposes of calculating basic and diluted earnings (loss) per share (in thousands, except per share data):
YEAR ENDED SEPTEMBER 30, ----------------------------- 2001 2000 1999 -------- ------- -------- Basic earnings (loss) per share: Net income (loss) $(29,660) $15,109 $ (9,534) Accretion and dividends on preferred stock (90) (120) (774) -------- ------- -------- Net income (loss) attributable to common stockholders $(29,750) $14,989 $(10,308) ======== ======= ======== Weighted average common shares outstanding 18,015 15,661 11,542 ======== ======= ======== Basic earnings (loss) per share attributable to common stockholders $ (1.65) $ 0.96 $ (0.89) ======== ======= ======== Diluted earnings (loss) per share: Net income (loss) used to compute diluted earnings (loss) per share $(29,750) $15,109 $(10,308) ======== ======= ======== Weighted average common shares outstanding 18,015 15,661 11,542 Dilutive stock options, warrants and preferred stock conversions -- 1,531 -- -------- ------- -------- Weighted average common shares outstanding for purposes of computing diluted earnings (loss) per share 18,015 17,192 11,542 ======== ======= ======== Diluted earnings (loss) per share $ (1.65) $ 0.88 $ (0.89) ======== ======= ========
Options to purchase and assumed conversions totaling approximately 3,921,000 shares of common stock were excluded from the computation of diluted loss per share attributable to common stockholders for the year ended September 30, 2001, as their effect would be anti-dilutive. Options and warrants to purchase approximately 291,000 shares of common stock were excluded from the computation of diluted earnings per share attributable to common stockholders for the year ended September 30, 2000, as their effect would be anti-dilutive. Options and warrants to purchase approximately 887,000 shares of common stock and 300,000 shares of preferred stock were excluded from the computation of diluted loss per share attributable to common stockholders for the year ended September 30, 1999, as their effect would be anti-dilutive. However, these options, warrants and conversions could become dilutive in future periods. 55 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES The components of the income tax provision (benefit) are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 -------- ------- ------- Current: Federal $ -- $ 9,685 $ 397 State 343 1,237 82 Foreign 7,268 7,737 1,664 -------- ------- ------- 7,611 18,659 2,143 -------- ------- ------- Deferred: Federal (11,916) (5,206) (2,403) State (2,134) 55 (429) Foreign -- 101 (185) -------- ------- ------- (14,050) (5,050) (3,017) -------- ------- ------- $ (6,439) $13,609 $ (874) ======== ======= =======
The components of income (loss) before income taxes, but including minority interests, are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------- 2001 2000 1999 -------- ------- -------- Domestic $(47,342) $21,930 $(12,601) Foreign 10,819 6,514 2,153 -------- ------- -------- $(36,523) $28,444 $(10,448) ======== ======= ========
The significant components of the net deferred tax asset are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ----------------------------- 2001 2000 1999 ------- ------- ------- Reserves not currently deductible $35,770 $20,624 $ 7,417 Federal and state tax credits 11,721 8,203 5,195 Capitalized research and development 1,340 1,895 2,894 Net operating loss carryforwards 5,314 6,407 6,525 ------- ------- ------- Deferred tax asset 54,145 37,129 22,031 ------- ------- ------- Depreciation and amortization 5,780 5,088 174 Other 1,189 119 -- ------- ------- ------- Deferred tax liability 6,969 5,207 174 ------- ------- ------- Valuation reserve 8,257 5,548 11,297 ------- ------- ------- Net deferred tax asset $38,919 $26,374 $10,560 ======= ======= =======
56 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The differences between the income tax provision (benefit) and income taxes computed using the applicable U.S. statutory federal tax rate are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 -------- ------- ------- Income tax provision (benefit) computed at federal statutory rate $(12,783) $ 9,955 $(3,658) State income taxes, net of federal taxes (benefit) (1,164) 813 (245) Research and development tax credits (1,700) (1,085) (544) Foreign sales corporation tax benefit (205) (582) (36) Foreign income taxed at different rates 1,910 1,157 (81) Nondeductible transaction expenses 1,004 379 371 Change in deferred tax asset valuation allowance 2,708 (553) 1,616 Permanent differences 86 307 7 Elimination of Acquisition Corporation's provision -- -- 893 Nondeductible amortization of goodwill 5,057 3,751 -- Foreign tax credit carryforwards (2,708) (2,754) -- Withholding taxes 1,207 2,125 -- Other 149 96 803 -------- ------- ------- $ (6,439) $13,609 $ (874) ======== ======= =======
The Company does not provide for U.S. income taxes applicable to undistributed earnings of its foreign subsidiaries since these earnings are indefinitely reinvested. A valuation allowance has been established for certain of the future domestic income tax benefits primarily related to Research and Development and Foreign Tax Credits based on management's assessment that it is more likely than not that such benefits will not be realized. As of September 30, 2001, the Company had federal and state net operating loss carryforwards of approximately $18.5 million and federal and state research and development tax credit carryforwards of approximately $7.6 million and foreign tax credit carryforwards of approximately $4.1 million available to reduce future tax liabilities, which expire at various dates through 2021. The ultimate realization of the remaining loss carryforwards is dependent upon the generation of sufficient taxable income in respective jurisdictions. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 6. FINANCING ARRANGEMENTS On May 23, 2001, the Company completed the private placement of $175.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due in 2008. The amount sold includes $25.0 million principal amount of notes purchased by the initial purchaser upon exercise in full of their thirty day option to purchase additional notes. The Company received net proceeds of $169.5 million from the sale. Interest on the notes will be paid on June 1 and December 1 of each year, with the first interest payment due on December 1, 2001. The notes will mature on June 1, 2008. The Company may redeem the notes at a premium of 14.2% on or after June 6, 2004, or earlier if the price of the Company's common stock reaches certain prices. Holders may require the Company to repurchase the notes upon a change in control of the Company in certain circumstances. The notes are convertible at any time prior to maturity, at the option of the holders, into shares of the Company's common stock, at a conversion price of $70.23 per share, subject to certain adjustments. 57 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The notes are subordinated to the Company's senior indebtedness and structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries. The Company has a $10.0 million uncommitted demand promissory note credit facility with ABN AMRO on May 2, 2000. The facility is payable on demand or on December 31, 2001, whichever occurs first. ABN AMRO is not obligated to extend loans or issue letters of credit under this facility. The interest rates for borrowings and letters of credit under the facility are expressed in relation to LIBOR and a margin of 1.75%, or at 0.75% above ABN AMRO's base rate. Approximately $1.1 million in face amount of letters of credit outstanding under the original facility were transferred to the replacement facility. At September 30, 2001, $1.2 million of the facility was in use, all of it for letters of credit. In connection with the acquisition of the e-Diagnostics product line business, the Company issued a $17.0 million one-year note payable to the selling stockholders. The note becomes due on June 25, 2002 and is payable in cash or common stock, or any combination thereof, at the Company's discretion. The Company has discounted the note payable using an imputed interest rate of 4.75%, to $16.2 million, for accounting purposes, and is amortizing the resulting discount to interest expense through the note's maturity date. In connection with the acquisition of SimCon, the Company issued a note payable to the selling stockholders for $750,000, payable in one year. The note becomes due on May 14, 2002 and is payable in common stock. The Company has discounted the note payable using an imputed interest rate of 4.75%, to $714,375, for accounting purposes and is amortizing the resulting discount to interest expense through the notes maturity date. In connection with the acquisition of ASC and ASI, the Company issued a promissory note to Daifuku America in the amount of $16.0 million, bearing interest at 4.0% per annum. The interest on the note was paid quarterly and the note was repaid on January 5, 2001. Debt consists of the following (in thousands):
SEPTEMBER 30, ------------------- 2001 2000 -------- ------- Convertible subordinated notes at 4.75%, due on June 1, 2008 $175,000 $ -- Notes payable 17,122 16,000 Revolving line of credit -- 350 Credit facility for working capital borrowings at 8.92% per annum, collateralized by assets 325 775 Capital lease obligations at rates of 5.0% to 21.0% per annum, collateralized by certain fixed assets, expired November 2000 -- 26 Other 98 55 -------- ------- 192,545 17,206 Less current portion 17,514 16,874 -------- ------- Long-term debt $175,031 $ 332 ======== =======
At September 30, 2001, the Company had working capital loans of $0.3 million outstanding, maturing through April 2002. In November 1998, Smart Machines entered into a loan and security agreement with a leasing company. The agreement allowed for working capital borrowings of up to $2.0 million and equipment loans of up to $0.5 million. The ability to borrow against this facility expired on December 31, 1999. The loans are payable in monthly installments of principal and interest, with a 10.0% principal payback due at the time of the final payment. Annual principal payments due under these notes are $0.3 million in the year ended September 30, 2002 after which the loans will be paid in full. All borrowings are collateralized by Smart Machines' assets. 58 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. POSTRETIREMENT BENEFITS The Company sponsors defined contribution plans that meet the requirements of Section 401(k) of the Internal Revenue Code. All United States employees of the Company who meet minimum age and service requirements are eligible to participate in the plan. The plan allows employees to invest, on a pre-tax basis, a percentage of their annual salary subject to statutory limitations. The Company's contribution expense for worldwide defined contribution plans was $2.2 million, $1.1 million and $0.2 million in the years ended September 30, 2001, 2000 and 1999, respectively. 8. STOCKHOLDERS' EQUITY AND CONVERTIBLE REDEEMABLE PREFERRED STOCK PREFERRED STOCK At September 30, 2001 and 2000, there were one million shares of preferred stock, $0.01 par value per share authorized; however, none were issued or outstanding. Preferred stock may be issued at the discretion of the Board of Directors without stockholder approval with such designations, rights and preferences as the Board of Directors may determine. RESTRICTED COMMON STOCK In connection with the acquisition of PTI by the Company, the Company acquired 9,208 shares of PTI restricted common stock. The PTI restricted common stock was nonvoting and was convertible into PTI common stock, and was subsequently converted into Brooks common stock upon its acquisition by the Company. CONVERTIBLE REDEEMABLE PREFERRED STOCK In connection with the acquisition of PTI, the Company acquired 90,000 shares of PTI Series A Convertible Redeemable Preferred Stock. The conversion ratio was 1:3.48 PTI preferred shares to Brooks common shares. These shares were converted into common shares of the Company upon the acquisition of PTI. COMMON STOCK OFFERING On March 7, 2000, the Company completed a public offering of 3,250,000 shares of its common stock, of which 2,750,000 shares were offered by the Company and 500,000 were offered by selling stockholders. The Company realized proceeds, net of $12.9 million of issuance costs, of $220.5 million on the sale of the initial 2,750,000 shares and the additional 320,500 shares purchased by the underwriters from the Company on March 23, 2000 to cover over-allotments of shares. The Company did not receive any proceeds from the sale of shares by the selling stockholders. WARRANTS Prior to its acquisition by the Company, PTI had issued warrants to purchase 10,000 shares of PTI common stock at an exercise price of $1.60 per share. These warrants were excercised for shares of PTI common stock on July 12, 2001 immediately prior to the acquisition of PTI by the Company. These shares were then exchanged for approximately 31,000 shares of the Company's common stock in connection with the acquisition. At September 30, 2001, there were no warrants outstanding. In connection with debt it had issued prior to its acquisition by the Company, Smart Machines had issued warrants to purchase 10,000 shares of its Series C preferred stock, 57,182 shares of its Series D preferred stock, 961,234 shares of its Series E stock and 42,658 shares of its common stock. These warrants were converted into warrants to purchase the Company's common stock on August 31, 1999, in conjunction with 59 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the acquisition of Smart Machines. The outstanding warrants expired on May 31, 2001. At September 30, 2000, warrants to acquire 84,691 shares of common stock were outstanding, at an exercise price of $25.56 per share. RIGHTS DISTRIBUTION In July 1997, the Board of Directors declared a dividend of one preferred purchase right (a "right") for each share of common stock outstanding on August 12, 1997. Each right entitles the registered holder to purchase from the Company, upon certain triggering events, one one-thousandth of a share of Series A Junior Participating Preferred Stock (the "Series A Preferred Shares"), par value $0.01 per share, of the Company, at a purchase price of $135.00 per one one-thousandth of a Series A Preferred Share, subject to adjustment. Redemption of the rights could generally discourage a merger or tender offer involving the securities of the Company that is not approved by the Company's Board of Directors by increasing the cost of effecting any such transaction and, accordingly, could have an adverse impact on stockholders who might want to vote in favor of such merger or participate in such tender offer. The rights will expire on the earlier of July 31, 2007, or the date on which the rights are redeemed. The terms of the rights may generally be amended by the Board of Directors without the consent of the holders of the rights. 9. STOCK PLANS 2000 COMBINATION STOCK OPTION PLAN The purposes of the 2000 Combination Stock Option Plan (the "2000 Plan"), adopted by the Board of Directors of the Company in February 2000, are to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. Under the 2000 Plan the Company may grant (i) incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended; and (ii) options that are not qualified as incentive stock options ("nonqualified stock options"). All employees of the Company or any affiliate of the Company are eligible to participate in the 2000 Plan. Options under the 2000 Plan generally vest over four years and expire seven years from the date of grant. A total of 1,000,000 shares of common stock were reserved for issuance under the 2000 Plan. Of these shares, options to purchase 644,600 shares are outstanding and 355,400 shares remain available for grant as of September 30, 2001. 1998 EMPLOYEE EQUITY INCENTIVE PLAN The purposes of the 1998 Employee Equity Incentive Plan (the "1998 Plan"), adopted by the Board of Directors of the Company in April 1998, are to attract and retain employees and provide an incentive for them to assist the Company in achieving long-range performance goals, and to enable them to participate in the long-term growth of the Company. All employees of the Company, other than its officers and directors, (including contractors, consultants, service providers or others) who are in a position to contribute to the long-term success and growth of the Company, are eligible to participate in the 1998 Plan. A total of 3,550,000 shares of common stock have been reserved for issuance under the 1998 Plan. Of these shares, options on 2,701,782 shares are outstanding and 602,645 shares remain available for grant as of September 30, 2001. Options under the 1998 Plan generally vest over a period of four years and generally expire ten years from the date of grant. In order to align the 1998 Plan with its current practices, in January 2000, the Board of Directors amended the 1998 Plan to eliminate the Company's ability to award nonqualified stock options with exercise prices at less than fair market value. 1995 EMPLOYEE STOCK PURCHASE PLAN On February 22, 1996, the stockholders approved the 1995 Employee Stock Purchase Plan (the "1995 Plan") which enables eligible employees to purchase shares of the Company's common stock. Under the 1995 60 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Plan, eligible employees may purchase up to an aggregate of 750,000 shares during six-month offering periods commencing on January 1 and July 1 of each year at a price per share of 85% of the lower of the market price per share on the first or last day of each six-month offering period. Participating employees may elect to have up to 10% of base pay withheld and applied toward the purchase of such shares. The rights of participating employees under the 1995 Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. As of September 30, 2001, 296,675 shares of common stock have been purchased under the 1995 Plan and 453,325 remain available for purchase. 1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN The purpose of the 1993 Non-Employee Director Stock Option Plan (the "Directors Plan") is to attract and retain the services of experienced and knowledgeable independent directors of the Company for the benefit of the Company and its stockholders and to provide additional incentives for such independent directors to continue to work for the best interests of the Company and its stockholders through continuing ownership of its common stock. Each director who is not an employee of the Company or any of its subsidiaries is eligible to receive options under the Directors Plan. Under the Directors Plan, each eligible director receives an automatic grant of an option to purchase 10,000 shares of common stock upon becoming a director of the Company and an option to purchase 5,000 shares on July 1 each year thereafter. Options granted under the Directors Plan generally vest over a period of five years and generally expire ten years from the date of grant. A total of 190,000 shares of common stock have been reserved for issuance under the Directors Plan. Of these shares, options on 96,000 shares are outstanding and 41,000 shares remain available for grant as of September 30, 2001. 1992 COMBINATION STOCK OPTION PLAN Under the Company's 1992 Stock Option Plan (the "1992 Plan"), the Company may grant both incentive stock options and nonqualified stock options. Incentive stock options may only be granted to persons who are employees of the Company at the time of grant, which may include officers and directors who are also employees. Nonqualified stock options may be granted to persons who are officers, directors or employees of or consultants or advisors to the Company or persons who are in a position to contribute to the long-term success and growth of the Company at the time of grant. Options granted under the 1992 Plan generally vest over a period of four years and generally expire ten years from the date of grant. A total of 1,950,000 shares of common stock have been reserved for issuance under the 1992 Plan. Of these shares, options on 693,288 shares are outstanding and 62,001 shares remain available for grant as of September 30, 2001. STOCK OPTIONS OF ACQUIRED COMPANY In connection with the acquisition of PTI, the Company assumed a stock option plan that was adopted by PTI on October 10, 1991. At acquisition, 32,018 options to purchase PTI common stock were outstanding and converted in 99,470 options to purchase the Company's common stock. The Company does not intend to issue any additional options under the PTI stock option plan. 61 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTION ACTIVITY AND PRO FORMA INFORMATION Aggregate stock option activity for all plans for the years ended September 30, 2001, 2000 and 1999 is as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ 2001 2000 1999 -------------------- -------------------- -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- --------- -------- --------- -------- Options outstanding at beginning of year 3,399,313 $27.75 2,057,828 $14.77 1,157,038 $ 7.87 Granted 1,564,893 $31.73 2,094,033 $35.61 1,333,300 $18.29 Exercised (371,972) $18.14 (509,010) $ 8.52 (298,948) $ 3.77 Canceled (336,706) $30.37 (243,538) $25.73 (133,562) $14.81 --------- --------- --------- Options outstanding at end of year 4,255,528 $29.85 3,399,313 $27.75 2,057,828 $14.77 ========= ========= ========= Options exercisable at end of year 882,651 $24.95 425,615 $14.00 512,540 $ 6.76 ========= ========= ========= Weighted average fair value of options granted during the period $23.28 $25.97 $13.06 Options available for future grant 1,061,046 =========
The following table summarizes information about stock options outstanding at September 30, 2001:
OPTIONS OUTSTANDING ----------------------------------------- WEIGHTED- OPTIONS EXERCISABLE AVERAGE ------------------------ REMAINING WEIGHTED- WEIGHTED- RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE --------------- --------- ------------ -------------- ------- -------------- $ 0.5151 - $ 2.2100 91,377 5.95 $ 1.6285 71,957 $ 1.5815 $ 2.2130 - $ 9.6250 190,184 6.78 $ 8.3784 64,245 $ 7.1278 $ 9.8750 - $13.2500 191,400 5.67 $11.8749 139,250 $11.5454 $13.3750 - $23.3750 510,696 7.47 $17.6832 133,458 $18.0106 $23.5351 - $27.2500 338,168 7.25 $26.6704 124,449 $27.0718 $27.5630 870,950 6.26 $27.5630 0 $ 0.0000 $27.7500 - $30.1250 524,289 8.24 $30.0376 96,181 $30.0300 $30.2500 - $39.5000 420,909 7.44 $33.3293 43,267 $30.3667 $39.7500 442,750 6.19 $39.7500 110,686 $39.7500 $39.9600 - $52.1719 430,405 6.74 $43.3071 35,720 $44.7105 $53.7500 - $78.8750 244,100 6.80 $61.0640 63,363 $60.9617 $83.3750 300 5.55 $83.3750 75 $83.3750 - ------------------- --------- ---- -------- ------- -------- $ 0.5151 - $83.3750 4,255,528 6.91 $29.8478 882,651 $24.9477 ========= =======
Pro forma information regarding net income (loss) is required by FAS 123, and has been calculated as if the Company had accounted for its employee stock options and stock purchase plan under the fair value method of that Statement. The fair value of each option grant was estimated on the date of grant; the fair 62 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value of each employee stock purchase was estimated on the commencement date of each offering period using the Black-Scholes option-pricing model with the following assumptions:
YEAR ENDED SEPTEMBER 30, ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- Risk-free interest rate 3.2% - 5.95% 6.3% - 6.6% 5.5% - 6.3% Volatility 100% 103% 100% Expected life (years) -- options 4.0 4.0 4.0 Dividend yield 0% 0% 0%
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except per share information):
YEAR ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 -------- ------ -------- Pro forma net income (loss) $(43,056) $7,938 $(12,601) Pro forma net income (loss) per share Basic $ (2.39) $ 0.51 $ (1.09) Diluted $ (2.39) $ 0.46 $ (1.09)
Because most options vest over several years and additional option grants are expected to be made subsequent to September 30, 2001, the results of applying the fair value method may have a materially different effect on pro forma net income in future years. 10. ACQUISITION-RELATED AND RESTRUCTURING COSTS AND ACCRUALS The Company recorded $9.3 million of acquisition-related and restructuring charges during the year ended September 30, 2001, comprised of $3.9 million of acquisition-related costs and $5.4 million of restructuring charges. The acquisition-related costs primarily relate to transaction costs incurred during the Company's recent acquisition of PTI. On September 5, 2001, the Company's Board of Directors approved a formal plan of restructure in response to the current downturn in the semiconductor industry. To that effect, the Company recorded restructuring charges of $5.4 million in the fourth quarter of the fiscal year. Of this amount, $2.0 million is related to workforce reductions of approximately 140 employees which is expected to be paid in 2002 and $3.4 million for the consolidation and strategic focus realignment of several facilities of which $0.1 million was paid in 2001, $1.7 million is expected to be paid in 2002 and $1.6 million in the subsequent years. These measures were largely intended to align the Company's capacity and infrastructure to anticipated customer demand. Workforce charges, consisting principally of severance costs, were recorded based on specific identification of employees to be terminated, along with their job classifications or functions and their locations. The charges for the Company's excess facilities were recorded to recognize the lower of the amount of the remaining lease obligations, net of any sublease rentals, or the expected lease settlement costs. These costs have been estimated from the time when the space is expected to be vacated and there are no plans to utilize the facility in the future. Costs incurred prior to vacating the facilities will be charged to operations. During the year ended September 30, 2000, the Company recorded acquisition-related costs of $0.6 million, primarily for legal, accounting and other costs associated with acquiring Irvine Optical. During the year ended September 30, 1999, the Company recorded acquisition-related and restructuring costs of $3.1 million, including $1.2 million of legal, accounting and other costs associated with acquiring Smart Machines. In addition, the Company approved and implemented a restructuring program designed to 63 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) integrate its fiscal 1999 acquisitions. These actions involved 7 employees, all of whom were terminated prior to September 30, 1999, and the write-off of certain fixed assets prior to September 30, 1999. Accordingly, during fiscal 1999, the Company recorded a charge of $1.9 million related to the restructuring program. The Company also recorded $2.9 million of costs in purchase accounting transactions consisting of $2.0 million for severance costs principally related to former Infab employees, $0.6 million to exit certain duplicate facilities and $0.3 million for other related costs. The activity related to the Company's acquisition-related and restructuring accruals is below (in thousands):
FISCAL 2001 ACTIVITY ------------------------------------------------------------------ NEW INITIATIVES BALANCE -------------------- BALANCE SEPTEMBER 30, PURCHASE SEPTEMBER 30, 2000 EXPENSE ACCOUNTING UTILIZATION 2001 ------------- ------- ---------- ----------- ------------- Facilities $507 $3,369 $-- $ (567) $3,309 Workforce-related 20 2,000 -- (68) 1,952 Other 11 3,945 -- (3,956) -- ---- ------ -- ------- ------ $538 $9,314 $-- $(4,591) $5,261 ==== ====== == ======= ======
FISCAL 2000 ACTIVITY ------------------------------------------------------------------ NEW INITIATIVES BALANCE -------------------- BALANCE SEPTEMBER 30, PURCHASE SEPTEMBER 30, 1999 EXPENSE ACCOUNTING UTILIZATION 2000 ------------- ------- ---------- ----------- ------------- Facilities $1,325 $ -- $ (450) $ (368) $507 Workforce-related 2,332 -- (2,000) (312) 20 Other 211 578 (200) (578) 11 ------ ---- ------- ------- ---- $3,868 $578 $(2,650) $(1,258) $538 ====== ==== ======= ======= ====
FISCAL 1999 ACTIVITY ------------------------------------------------------------------ NEW INITIATIVES BALANCE -------------------- BALANCE SEPTEMBER 30, PURCHASE SEPTEMBER 30, 1998 EXPENSE ACCOUNTING UTILIZATION 1999 ------------- ------- ---------- ----------- ------------- Facilities $1,294 $ -- $ 630 $ (599) $1,325 Depreciable assets -- 1,628 20 (1,648) -- Workforce-related 238 332 2,000 (238) 2,332 Other 722 1,160 200 (1,871) 211 ------ ------ ------ ------- ------ $2,254 $3,120 $2,850 $(4,356) $3,868 ====== ====== ====== ======= ======
11. SEGMENT AND GEOGRAPHIC INFORMATION The Company has three reportable segments: tool automation systems, factory interface solutions and factory automation solutions. The tool automation systems segment provides a full complement of semiconductor wafer and flat panel display substrate handling systems, products and components and products for data storage. The factory interface solutions segment provides hardware and software solutions, including mini-environments and automated transfer mechanisms, to isolate the semiconductor wafer from the production environment. The factory automation segment provides software products for the semiconductor manufacturing execution system ("MES") market, including consulting and software customization. The Company evaluates performance and allocates resources based on revenues and operating income (loss). Operating income (loss) for each segment includes selling, general and administrative expenses 64 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) directly attributable to the segment. Amortization of acquired intangible assets and acquisition-related and restructuring charges are excluded from the segments' operating income (loss). The Company's non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon segment revenues. Segment assets exclude deferred taxes, acquired intangible assets, all assets of the Company's Securities Corporation and investments in subsidiaries. Financial information for the Company's business segments is as follows (in thousands):
TOOL FACTORY FACTORY AUTOMATION INTERFACE AUTOMATION SYSTEMS SOLUTIONS SOLUTIONS TOTAL ---------- --------- ---------- -------- Year ended September 30, 2001 Revenues $171,351 $97,796 $112,569 $381,716 Gross margin $ 53,822 $25,799 $ 72,763 $152,384 Operating income (loss) $ 10,874 $(7,980) $ (7,297) $ (4,403) Depreciation $ 9,790 $ 837 $ 2,792 $ 13,419 Assets $194,299 $41,608 $ 44,832 $280,739 Year ended September 30, 2000 Revenues $167,759 $88,052 $ 81,373 $337,184 Gross margin $ 70,572 $34,299 $ 55,854 $160,725 Operating income $ 24,416 $ 9,715 $ 5,037 $ 39,168 Depreciation $ 6,540 $ 1,290 $ 2,988 $ 10,818 Assets $128,713 $54,895 $ 37,858 $221,466 Year ended September 30, 1999 Revenues $ 79,135 $19,635 $ 24,187 $122,957 Gross margin $ 26,735 $ 9,707 $ 18,710 $ 55,152 Operating loss $ (5,064) $ (742) $ (2,331) $ (8,137) Depreciation $ 7,604 $ 725 $ 1,794 $ 10,123 Assets $ 82,260 $20,410 $ 18,930 $121,600
A reconciliation of the Company's reportable segment operating income and segment assets to the corresponding consolidated amounts as of and for the year ended September 30, 2001, 2000 and 1999 is as follows (in thousands):
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 -------- -------- -------- Segment operating income (loss) $ (4,403) $ 39,168 $ (8,137) Amortization of acquired intangibles 30,187 18,506 565 Acquisition-related and restructuring costs 9,314 578 3,120 -------- -------- -------- Total operating income (loss) $(43,904) $ 20,084 $(11,822) ======== ======== ======== Segment assets $280,739 $221,466 $121,600 Deferred tax asset 45,888 31,581 10,734 Acquired intangible assets 99,056 58,405 15,327 Securities Corporation assets 278,148 208,334 49,639 -------- -------- -------- Total assets $703,831 $519,786 $197,300 ======== ======== ========
65 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net revenues by geographic area are as follows (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------ 2001 2000 1999 -------- -------- -------- North America $191,992 $175,874 $ 69,889 Asia/Pacific 122,000 114,302 40,128 Europe 67,724 47,008 12,940 -------- -------- -------- $381,716 $337,184 $122,957 ======== ======== ========
Long-lived assets, including property, plant and equipment and intangible assets are as follows (in thousands):
SEPTEMBER 30, ---------------------------- 2001 2000 1999 -------- ------- ------- North America $158,086 $74,569 $23,266 Asia/Pacific 5,052 4,948 2,965 Europe 4,237 5,970 9,093 -------- ------- ------- $167,375 $85,487 $35,324 ======== ======= =======
12. SIGNIFICANT CUSTOMERS AND RELATED PARTY INFORMATION One of the Company's directors had previously also been a director of one of the Company's customers. On January 23, 2001, this individual resigned his position with the Company's customer. Accordingly, this customer is not considered a related party in subsequent reporting periods. Revenues recognized from this customer in the current fiscal year through January 23, 2001 were $13.9 million. Revenues recognized from this customer in the years ended September 30, 2000 and 1999 were $36.9 million and $15.3 million, or 11.0% and 12.4% of revenues, respectively. The Company had no customer that accounted for more than 10% of revenues in the year ended September 30, 2001 and no other customer that accounted for more than 10% of revenues in the years ended September 30, 2000 or 1999. On June 11, 2001, the Company appointed a new member to its Board of Directors. This individual is also a director of one of the Company's customers. Accordingly, this customer is considered a related party for the period subsequent to June 11, 2001. Revenues from this customer for the period from June 11, 2001 through September 30, 2001 were approximately $32,000. The amount due from this customer included in accounts receivable at September 30, 2001 was approximately $32,000. Related party amounts included in accounts receivable are on standard terms and manner of settlement. 66 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. OTHER BALANCE SHEET INFORMATION Components of other selected captions in the Consolidated Balance Sheets follow (in thousands):
SEPTEMBER 30, ------------------ 2001 2000 -------- ------- Accounts receivable $ 99,679 $96,745 Less allowances 6,114 1,989 -------- ------- $ 93,565 $94,756 ======== ======= Inventories Raw materials and purchased parts $ 35,021 $35,189 Work-in-process 12,099 13,938 Finished goods 2,175 9,480 -------- ------- $ 49,295 $58,607 ======== ======= Intangible assets Patents $ 4,579 $ 7,448 Capitalized software -- 1,805 Completed technology 31,575 4,505 License agreements 678 678 Trademarks and trade names 2,426 1,564 Non-competition agreements 2,133 1,033 Assembled workforces 10,590 5,880 Customer relationships 1,305 1,305 Goodwill 96,858 58,638 -------- ------- 150,144 82,856 Less accumulated amortization 49,228 22,521 -------- ------- $100,916 $60,335 ======== =======
The fixed asset balance includes computer equipment and software and machinery and equipment aggregating $2.9 million as of both September 30, 2001 and 2000 acquired under capital leases. These fixed assets were fully amortized at both September 30, 2001 and 2000. Amortization expense for fixed assets under capital leases was $0.1 million and $0.2 million for the years ended September 30, 2000 and 1999, respectively. Depreciation expense was $13.4 million, $10.8 million and $10.1 million for the years ended September 30, 2001, 2000 and 1999, respectively. 14. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases manufacturing and office facilities and certain equipment under operating leases that expire through 2011. Rental expense under operating leases for the years ended September 30, 2001, 2000 67 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and 1999 was $4.8 million, $5.8 million and $4.9 million, respectively. Future minimum lease commitments on non-cancelable operating leases, lease income and sublease income are as follows (in thousands):
LEASE AND OPERATING SUBLEASE LEASES INCOME --------- --------- Year ended September 30, 2002 $ 7,812 $781 2003 4,725 130 2004 3,250 -- 2005 2,822 -- 2006 2,117 -- Thereafter 3,750 -- ------- ---- Total minimum lease payments $24,476 $911 ======= ====
These future minimum lease commitments include approximately $3.3 million related to a facility the Company has elected to abandon in connection with its restructuring initiatives. On January 29, 2001 the Company purchased three buildings, two of which are used as Brooks' corporate headquarters and primary manufacturing facility, and the third is currently leased to an unrelated party. The term of that lease concludes in November 2002. As of September 30, 2001, the Company did not have any capital lease obligations. CONTINGENCY There has been substantial litigation regarding patent and other intellectual property rights in the semiconductor and related industries. The Company has received notice from a third party alleging infringements of such party's patent rights by certain of the Company's products. The Company believes the patents claimed are invalid. In the event of litigation with respect to this claim, the Company is prepared to vigorously defend its position. However, because patent litigation can be extremely expensive and time consuming, the Company may seek to obtain a license to one or more of the disputed patents. Based upon currently available information, the Company would only do so if such license fees would not be material to the Company's consolidated financial statements. Currently, the Company does not believe it is probable that the future events related to this threatened matter would have an adverse effect on the Company's business. 15. SUBSEQUENT EVENTS On December 13, 2001, the Company acquired the Automation Systems Group of Zygo Corporation in exchange for approximately $11 million of cash, net of closing adjustments aggregating approximately $2 million. The Automation Systems Group, located in Florida, is a manufacturer of reticle automation systems, including reticle sorters, reticle macro inspection systems and reticle handling solutions for the semiconductor industry. The transaction will be accounted for as a purchase of assets. On October 23, 2001, the Company and PRI Automation, Inc. ("PRI") entered into an Agreement and Plan of Merger (the "Merger Agreement"). PRI supplies advanced factory automation systems, software, and services that optimize the productivity of semiconductor and precision electronics manufacturers, as well as OEM process tool manufacturers. Pursuant to the Merger Agreement and subject to the terms and conditions contained therein, PRI common stockholders will receive 0.52 shares of the Company's common stock for each share of PRI common stock. 68 BROOKS AUTOMATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Merger, which is expected to close in the first calendar quarter of 2002, is contingent upon the fulfillment of certain conditions, including, but not limited to, all required regulatory approvals, the approval of the Merger by the stockholders of the Company and the stockholders of PRI and the approval of the issuance of the Company's Common Stock in the Merger by the stockholders of the Company. The Merger would be accounted for as a purchase of assets. On October 9, 2001, the Company acquired 90% of the capital stock of Tec-Sem A.G., a Swiss company ("Tec-Sem") in exchange for $12.9 million in cash and 131,750 shares of Brooks common stock with a market value of approximately $4 million at the time of issuance, subject to post-closing adjustments. At the same time, the Company obtained an option to acquire, and one of the selling stockholders was given an option to sell, the remaining 10% of the stock of Tec-Sem for $1.1 million in cash and 23,250 shares of Brooks common stock. The Company also made stock grants to certain key non-owner employees of Tec-Sem. Tec-Sem is a leading manufacturer of bare reticle stockers, tool buffers and batch transfer systems for the semiconductor industry. The transaction will be accounted for as a purchase of assets. On October 5, 2001, the Company acquired substantially all of the assets of General Precision, Inc. ("GPI"), in exchange for 850,000 shares of Brooks common stock, with a market value of approximately $25 million at the time of issuance, subject to post-closing adjustments. GPI, located in Valencia, California, is a leading supplier of high-end environmental solutions for the semiconductor industry. The transaction will be accounted for as a purchase of assets. 69 BROOKS AUTOMATION, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT BEGINNING COSTS AND OTHER AND END OF OF YEAR EXPENSES ACCOUNTS WRITE-OFFS YEAR ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Allowance for doubtful accounts Year ended September 30, 2001 $ 1,989 $4,691 $ 6 $ (572) $ 6,114 2000 $ 1,785 $ 540 $ 256 $ (592) $ 1,989 1999 $ 2,087 $ 199 $ -- $ (501) $ 1,785 Deferred tax asset valuation allowance Year ended September 30, 2001 $ 5,548 $3,603 $ -- $ (894) $ 8,257 2000 $11,297 $2,754 $1,242 $(9,745) $ 5,548 1999 $ 9,405 $1,892 $ -- $ -- $11,297
70 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is hereby incorporated by reference to the Company's definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is hereby incorporated by reference to the Company's definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is hereby incorporated by reference to the Company's definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is hereby incorporated by reference to the Company's definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year. PART IV ITEM 14. EXHIBITS (a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The consolidated financial statements of the Company and Schedule II Valuation and Qualifying Accounts and Reserves of the Company are listed in the index under Part II, Item 8, in this Form 10-K. Other financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. 71 (b) 3. EXHIBITS
EXHIBIT NO. DESCRIPTION REFERENCE - ------- ----------- --------- 2.01 Agreement and Plan of Merger dated September 21, 1998 A** relating to the combination of FASTech Integration, Inc. with the Company. 2.02 Stock for Cash Purchase Agreement dated March 31, 1999 B** relating to the acquisition of Hanyon Tech. Co., Ltd. by the Company. 2.03 Assets for Cash Purchase Agreement dated June 23, 1999 C** relating to the acquisition of substantially all the assets of Domain Manufacturing Corporation and its subsidiary Domain Manufacturing SARL by the Company. 2.04 Agreement and Plan of Merger dated July 7, 1999 relating to D** the combination of Smart Machines Inc. with the Company. 2.05 Master Purchase Agreement dated September 9, 1999 relating E** to the acquisition of substantially all of the assets of the Infab Division of Jenoptik by the Company. 2.06 Agreement and Plan of Merger dated January 6, 2000 relating F** to the combination of AutoSimulations, Inc. and Auto-Soft Corporation with the Company. 2.07 Interests for Stock Purchase Agreement dated May 5, 2000 G** relating to the acquisition of Irvine Optical Company LLC by the Company, as amended. 2.08 Stock Purchase Agreement dated as of February 16, 2001 H** relating to the acquisition of SEMY Engineering, Inc. by the Company. 2.09 Asset Purchase Agreement dated June 26, 2001 relating to the I** acquisition of assets of the e-diagnostic infrastructure of KLA-Tencor Corporation and its subsidiary KLA-Tencor Technologies Corporation. 2.10 Agreement and Plan of Merger dated June 27, 2001 relating to J** the combination of Progressive Technologies Inc. with the Company. 2.11 Asset Purchase Agreement dated October 5, 2001 relating to K** the acquisition of substantially all of the assets of General Precision, Inc. and GPI-Mostek, Inc. by the Company. 2.12 Share Purchase Agreement dated October 9, 2001 relating to L** the acquisition of Tec-Sem AG by the Company. 2.13 Agreement and Plan of Merger dated October 23, 2001 relating M** to the acquisition of PRI Automation, Inc. by the Company. 3.01 Certificate of Incorporation, as amended, of the Company. N** 3.02 Bylaws of the Company. O** 3.03 Certificate of Designation of Series A Junior Participating P** Preferred Stock. 4.01 Specimen Certificate for shares of the Company's common O** stock. 4.02 Description of Capital Stock (contained in the Certificate N** of Incorporation of the Company, filed as Exhibit 3.01). 4.03 Rights Agreement dated July 23, 1997. EE** 4.04 Amendment to Rights Agreement between the Company and Bank Filed herewith Boston, N.A. as Rights Agent. 4.05 Registration Rights Agreement dated January 6, 2000. Filed herewith 4.06 Shareholder Agreement dated January 6, 2000 by and among the F** Company, Daifuku America Corporation and Daifuku Co., Ltd. 4.07 Stockholders Agreement dated September 30, 1999 by and among E** the Company, Jenoptik AG, M+W Zander Holding GmbH and Robert J. Therrien. 4.08 Indenture dated as of May 23, 2001 between the Company and R** State Street Bank and Trust Company (as Trustee).
72
EXHIBIT NO. DESCRIPTION REFERENCE - ------- ----------- --------- 4.09 Registration Rights Agreement dated May 23, 2001 among the R** Company and Credit Suisse First Boston Corporation and SG Cowen Securities Corporation (as representatives of several purchasers). 4.10 Form of 4.75% Convertible Subordinated Note of the Company R** in the principal amount of $175,000,000 dated as of May 23, 2001. 4.11 Stock Purchase Agreement dated June 20, 2001 relating to the S** acquisition of CCS Technology, Inc. by the Company. 10.01 Employment Agreement between the Company and Robert J. Filed herewith* Therrien dated as of September 30, 2001. 10.02 Form of Indemnification Agreement for directors and officers O* ** of the Company. 10.03 Employment Agreement between the Company and Ellen B. T* ** Richstone. 10.04 Stockholder Agreement dated September 30, 1999 by and among E** the Company, Jenoptik AG, M+W Zander Holding GmbH and Robert J. Therrien relating to the acquisition of substantially all of the assets of the Infab Division of Jenoptik AG by the Company (filed as Exhibit 4.06). 10.05 Form of Agreement between Executive Officers and the Company U* ** Relating to Change of Control. 10.06 Agreement dated November 11, 1999 between Ellen B. Richstone U* ** and the Company Relating to Change of Control. 10.07 Lease Agreement dated February 24, 1999 between the Company U** and Clearfield Investments, LLC for the Company's Colorado manufacturing facility. 10.08 Transitional Services Agreement dated September 30, 1999 U** between the Company and Jenoptik AG relating to the Company's German manufacturing facility. 10.09 Lease Agreement dated June 7, 1995 between a subsidiary of U** the Company and Montague Oaks Phase I & II for the Company's California manufacturing facility. 10.10 Shareholder Agreement dated January 6, 2000 by and among the F** Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company. 10.11 Corporate Noncompetition and Proprietary Information F** Agreement dated January 6, 2000 by and among the Company, Daifuku America Corporation and Daifuku Co., Ltd. relating to the acquisition of the businesses of Auto-Soft Corporation and AutoSimulations, Inc. from Daifuku America Corporation by the Company. 10.12 Demand Promissory Note Agreement dated as of May 2, 2000, N** between the Company and ABN AMRO Bank N.V. 10.13 Stockholder Agreement between the Company and M+W Zander W** Holding AG. 10.14 Retention Agreement for J. Pelusi dated June 16, 2000. X* ** 10.15 Purchase Agreement for the Company's headquarters dated Y** January 17, 2001. 10.16 Lease between the Company and the Nasr Family Trust for K** 25000 Avenue Stanford, Valencia, California. 10.17 1993 Nonemployee Director Stock Option Plan. Z* ** 10.18 1992 Combination Stock Option Plan. AA* ** 10.19 1995 Employee Stock Purchase Plan, as amended. N* ** 10.20 1998 Employee Equity Incentive Option Plan. N* ** 10.21 2000 Combination Stock Option Plan. N* ** 10.22 2001 Restricted Stock Purchase Plan for KLA Product Line BB* ** Acquisition.
73
EXHIBIT NO. DESCRIPTION REFERENCE - ------- ----------- --------- 10.23 Progressive Technologies Inc. 1991 Stock Option and Stock CC* ** Purchase Plan. 10.24 Form of Voting Agreement between certain PRI Automation, DD** Inc. stockholders and the Company dated as of October 23, 2001. 10.25 Lease dated May 30, 2001 between Silver Oaks, LLC and the Filed herewith Company for 13931 Balboa Boulevard, Sylmar, California. 10.26 Lease dated July 18, 2000 by and between Progressive Filed herewith Technologies Inc. and Ames Pond LLC for 200 Ames Pond, Tewksbury, MA. 10.27 Lease between Bentall Properties LTD and Westminster Filed herewith Management Corporation and Brooks Automation (Canada) Corp. for Crestwood Corporate Centre, Richmond, B.C. 10.28 Asset Purchase Agreement by and among Brooks Automation, Filed herewith Inc., NexStar Corporation, and Zygo Corporation dated December 13, 2001 12.01 Calculation of Ratio of Earnings to Fixed Charges Filed herewith 21.01 Subsidiaries of the Company. Filed herewith 23.01 Consent of PricewaterhouseCoopers LLP. Filed herewith 23.02 Consent of Ernst & Young LLP, Independent Auditors. Filed herewith
- --------------- A. Incorporated by reference to the Company's registration statement on Form S-4 (Registration No. 333-64037) filed on September 23, 1998. B. Incorporated by reference to the Company's current report on Form 8-K filed on May 6, 1999. C. Incorporated by reference to the Company's current report on Form 8-K filed on July 14, 1999. D. Incorporated by reference to the Company's current report on Form 8-K filed on September 15, 1999, and amended on September 29, 2000 E. Incorporated by reference to the Company's current report on Form 8-K filed on October 15, 1999. F. Incorporated by reference to the Company's current report on Form 8-K filed on January 19, 2000. G. Incorporated by reference to the Company's registration statement on Form S-3 (Registration No. 333-42620) filed on July 31, 2000. H. Incorporated by reference to the Company's current report on Form 8-K filed on March 1, 2001. I. Incorporated by reference to the Company's current report on Form 8-K filed on July 9, 2001. J. Incorporated by reference to the Company's current report on Form 8-K filed on July 24, 2001. K. Incorporated by reference to the Company's current report on Form 8-K filed on October 19, 2001. L. Incorporated by reference to the Company's current report on Form 8-K filed on October 22, 2001. M. Incorporated by reference to the Company's current report on Form 8-K filed on October 26, 2001. N. Incorporated by reference to the Company's quarterly report on Form 10-Q filed on May 15, 2000 for the quarterly period ended March 31, 2000. O. Incorporated by reference to the Company's registration statement on Form S-1 (Registration No. 33-87296) filed on December 13, 1994. P. Incorporated by reference to the Company's registration statement on Form S-3 (Registration No. 333-34487) filed on August 27, 1997. Q. Incorporated by reference to the Company's current report on Form 8-K filed on January 19, 2000 and amended on February 14, 2000. R. Incorporated by reference to the Company's current report on Form 8-K filed on May 29, 2001. S. Incorporated by reference to the Company's registration statement on Form S-8 (Registration No. 333-67432) filed on August 13, 2001. 74 T. Incorporated by reference to the Company's annual report on Form 10-K filed on December 30, 1998 for the year ended September 30, 1998. U. Incorporated by reference to the Company's annual report on Form 10-K filed on December 29, 1999 for the annual period ended September 30, 1999. V. Incorporated by reference to the Company's quarterly report on Form 10-Q filed on February 14, 2000 for the quarterly period ended December 31, 1999. W. Incorporated by reference to the Company's annual report on Form 10-K filed on December 22, 2000 for the annual period ended September 30, 2000. X. Incorporated by reference to the Company's quarterly report on Form 10-Q filed on February 14, 2001 for the quarterly period ended December 31, 2000. Y. Incorporated by reference to the Company's quarterly report on Form 10-Q filed on May 11, 2001 for the quarterly period ended March 31, 2001. Z. Incorporated by reference to the Company's registration statement on Form S-8 (Registration No. 333-22717) filed on March 4, 1997. AA. Incorporated by reference to the Company's registration statement on Form S-8 (Registration No. 333-07313) filed on July 1, 1996. BB. Incorporated by reference to the Company's registration statement on Form S-8 (Registration No. 333-61928) filed on May 30, 2001. CC. Incorporated by reference to the Company's registration statement on Form S-8 (Registration No. 333-67432) filed on August 13, 2001. DD. Incorporated by reference to the Schedule 13D filed by the Company on November 2, 2001 with respect to certain shares of PRI Automation, Inc. EE. Incorporated by reference to the Company's current report on Form 8-K filed on August 7, 1997. * Management contract or compensatory plan or arrangement. ** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference. (c) REPORTS ON FORM 8-K The following reports on Form 8-K were filed during the quarterly period ended September 30, 2001: (1) Current Report on Form 8-K filed on August 21, 2001 relating to the Company's acquisition of Progressive Technologies, Inc. ("PTI") on July 12, 2001 and the Company's acquisition of Auto-Soft Corporation ("ASC") and AutoSimulations, Inc. ("ASI") on January 6, 2000. (i) The following supplementary financial information, restated to give effect to the Company's acquisition of PTI in a pooling of interests transaction effective July 12, 2001, was filed with the Form 8-K: - Management's Discussion and Analysis of Financial Condition and Results of Operations for the three years ended September 30, 2000, 1999 and 1998 - Report of Independent Accountants -- PricewaterhouseCoopers LLP - Report of Independent Auditors -- Ernst & Young - Report of Independent Public Accountants -- Arthur Andersen LLP - Supplementary Consolidated Balance Sheets as of September 30, 2000 and 1999 - Supplementary Consolidated Statements of Operations for the years ended September 30, 2000, 1999 and 1998 75 - Supplementary Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 2000, 1999 and 1998 - Supplementary Consolidated Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998 - Notes to Supplementary Consolidated Financial Statements for the three years ended September 30, 2000, 1999 and 1998 (ii) The following supplementary financial information, restated to give effect to the Company's acquisition of PTI in a pooling of interests transaction effective July 12, 2001, was filed with the Form 8-K: - Supplementary Consolidated Balance Sheets as of June 30, 2001 (unaudited) and September 30, 2000 - Supplementary Consolidated Statements of Operations for the nine months ended June 30, 2001 and 2000 (unaudited) - Supplementary Consolidated Statements of Cash Flows for the nine months ended June 30, 2001 and 2000 (unaudited) - Notes to Supplementary Consolidated Financial Statements for the nine months ended June 30, 2001 and 2000 (unaudited) - Management's Discussion and Analysis of Financial Condition and Results of Operations for the nine months ended June 30, 2001 and 2000 (iii) The following unaudited pro forma financial information giving effect to the acquisition of ASC and ASI as if the transaction had occurred on October 1, 1999, restated to give effect to the Company's acquisition of PTI in a pooling of interests transaction effective July 12, 2001, was filed with the Form 8-K: - Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended September 30, 2000 - Notes to Unaudited Pro Forma Combined Condensed Financial Statements (2) Current Report on Form 8-K filed on July 24, 2001 relating to the Company's acquisition of PTI on July 12, 2001. (3) Current Report on Form 8-K filed on July 9, 2001 relating to the Company's acquisition of the e-Diagnostics product business from KLA-Tencor, Inc. 76 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. BROOKS AUTOMATION, INC. Date: December 13, 2001 /s/ ROBERT J. THERRIEN -------------------------------------------------------- Robert J. Therrien, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT J. THERRIEN Director and President December 13, 2001 - ------------------------------------------------ (Principal Executive Officer) Robert J. Therrien /s/ ELLEN B. RICHSTONE Senior Vice President and December 13, 2001 - ------------------------------------------------ Chief Financial Officer Ellen B. Richstone (Principal Financial Officer) /s/ STEVEN E. HEBERT Principal Accounting Officer December 13, 2001 - ------------------------------------------------ Steven E. Hebert /s/ ROGER D. EMERICK Director December 13, 2001 - ------------------------------------------------ Roger D. Emerick /s/ AMIN J. KHOURY Director December 13, 2001 - ------------------------------------------------ Amin J. Khoury /s/ JUERGEN GIESSMANN Director December 13, 2001 - ------------------------------------------------ Juergen Giessmann /s/ JOSEPH MARTIN Director December 13, 2001 - ------------------------------------------------ Joseph Martin
77 EX-4.04 3 b40853baex4-04.txt AMENDMENT TO RIGHTS AGREEMENT BANK BOSTON NA Exhibit 4.03 BROOKS AUTOMATION, INC. AMENDMENT TO RIGHTS AGREEMENT This Amendment (this "Agreement"), dated as of October 23, 2001, to the Rights Agreement dated as of July 23, 1997 (the "Rights Agreement"), between Brooks Automation, Inc., a Delaware corporation (the "Company"), and Equiserve Trust Company, N.A. successor Rights Agent (the "Rights Agent"). RECITALS WHEREAS, the board of directors of the Company has approved a certain agreement and plan of merger (the "Merger Agreement") by and among the Company, PRI Automation, Inc., a Massachusetts corporation ("PRI"), Pontiac Acquisition Corp., a Massachusetts corporation wholly owned by the Company ("Brooks Merger Sub") at a meeting of the board of directors of the Company held on October 23, 2001 (the "Meeting"), pursuant to which Brooks Merger Sub will be merged with and into PRI (the "Merger"), and the stockholders of PRI will become stockholders of the Company. WHEREAS, upon the effectiveness of the Merger, PRI may acquire more than 15% of the outstanding shares of the Company's Common Stock, $.01 par value per share (the "Company's Common Stock"). WHEREAS, the acquisition of more than 15% of the outstanding shares of the Company's Common Stock would result in the acquiring entity or entities being deemed to be an "Acquiring Person" under the Rights Agreement, which would trigger certain events pursuant to the terms of the Rights Agreement. WHEREAS, at the Meeting the board of directors of the Company determined that it is in the best interest of the Company to amend the Rights Agreement prior to the Company entering into the Merger Agreement so that PRI and its Affiliates will not become Acquiring Persons under the Rights Agreement. WHEREAS, capitalized terms used but not otherwise defined in this Amendment No. 1 shall have the meanings given them in the Rights Agreement. NOW, THEREFORE, in consideration of the promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. AMENDMENT OF FIRST SUBPARAGRAPH OF SECTION 1. The first subparagraph of Section 1, definition of "Acquiring Person," is hereby amended and restated so that such subparagraph reads in its entirety as follows: "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, but shall not Execution Copy include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company, (iv) any entity holding Common Shares for or pursuant to the terms of any such employee benefit plan, (v) Robert J. Therrien, any members of his immediate family or any of his or their Affiliates or Associates, (vi) any person that is the Beneficial Owner of 15% or more of the Common Shares of the Company outstanding as of the close of the Nasdaq National Market on the date hereof; provided, however, that after such date such person does not become the Beneficial Owner of additional Common Shares of the Company in an aggregate amount (net of any sales) of the greater of 200,000 Common Shares or the number of Common Shares equal to 2.6% of the then outstanding Common Shares (as measured as of the date of the then acquisition of Common Shares by the Beneficial Owner); and provided, further that such person shall be treated as any other holder of Common Shares of the Company and shall no longer be entitled to the exclusion set forth in this clause (vi) after such time as such person becomes the Beneficial Owner of less than 15% of the Common Shares of the Company then outstanding or (vii) PRI Automation, Inc., a Massachusetts corporation ("PRI"), or any of its Affiliates if and only if, PRI or such Affiliates shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding as a result of the execution of the Agreement and Plan of Merger authorized and approved by the Board of Directors of the Company at the meeting of the Board of Directors held on October 23, 2001, as it may be amended from time to time (the "Merger Agreement"), or the consummation of the transactions contemplated thereby, and/or any options to purchase or proxies to vote Common Shares of the Company granted by the Company or any stockholder of the Company to PRI in connection with the Merger Agreement or any agreements or arrangements entered into by the Company and PRI in connection therewith. Notwithstanding the foregoing, (1) no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall so become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of an acquisition of Common Shares by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of an additional 1% of the outstanding Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person"; (2) if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, then such Person shall not be deemed to have become an "Acquiring Person" for any purposes of this Agreement; and (3) an underwriter or underwriters which become the Beneficial Owner of 15% or more of the Common Shares of the Corporation then outstanding in connection Execution Copy with an underwritten public offering with a view to the public distribution of such Common Shares shall not become an "Acquiring Person" hereunder." 2. REAFFIRMATION OF RIGHTS AGREEMENT. Except as specifically amended by this Amendment, the Rights Agreement shall remain in full force and effect. [SIGNATURES ON NEXT PAGE] Execution Copy IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. BROOKS AUTOMATION, INC. By: /s/ Ellen B. Richstone ----------------------------------------- Name: Ellen B. Richstone Title: Senior Vice President of Finance and Administration and Chief Financial Officer EQUISERVE TRUST COMPANY, N.A By: /s/ Margaret Prentice ----------------------------------------- Name: Margaret Prentice Title: Managing Director Execution Copy EX-4.05 4 b40853baex4-05.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.04 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement dated as of the 6th day of January, 2000, is entered into by and between Brooks Automation, Inc., a Delaware corporation (the "Company"), and Daifuku America Corporation, an Illinois corporation ( "Investor"). RECITALS WHEREAS, the Company and the Investor are parties to a certain Agreement and Plan of Merger dated December 15, 1999 among the Company, ASC Merger Corp., ASI Merger Corp., Investor, and Daifuku Co., Inc. (the "Purchase Agreement"); and WHEREAS, the Purchase Agreement requires that the Investors and the Company enter into a certain Shareholder Agreement dated January 6, 2000, relating to voting and stock transfers by the Investor (the "Shareholder Agreement"); and WHEREAS, among the conditions to the consummation of the transactions contemplated by the Purchase Agreement is the execution and delivery of a Registration Rights Agreement providing certain registration rights for the Investor; and WHEREAS, the parties hereto desire to set forth herein the registration rights of the Investor; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth and for other good and valuable consideration the Company and Investor hereby agree as follows: Section 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Anniversary Date" means the first, second or third anniversary of the Closing Date as defined in the Purchase Agreement. "Charter" means the Certificate of Incorporation of the Company, as amended. "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act and the Exchange Act. "Common Stock" means (a) the Company's Common Stock, $.01 par value, as authorized on the date of this Agreement, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current Registration Rights Agreement -1- Execution Copy dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies or in the absence of any provision to the contrary in the Company's Charter, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote may have been suspended by the happening of a contingency), and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Company Indemnified Person" means the Company, its directors, each of its officers who have signed or otherwise participated in the preparation of the registration statement, each underwriter of the Registrable Securities so registered (including any broker or dealer through whom such of the shares may be sold) and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act. "Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Excluded Registration" means a registration under the Securities Act of shares issued solely in connection with any acquisition of any entity or business, shares issuable solely upon the exercise of stock options, or shares issuable solely pursuant to employee benefit plans, including Registration Statements on Form S-4, S-8 or any successor form. "Investor Indemnified Person" means the Investor and each underwriter of the Registrable Shares (including their officers, directors, affiliates and partners) so registered (including any broker or dealer through whom such shares may be sold) and each Person, if any, who controls such Investor or any such underwriter within the meaning of Section 15 of the Securities Act. "Liabilities" for purpose of Sections 6 and 7 of this Agreement includes any claims, damages, losses, and liabilities or expenses. "Material Adverse Effect" means (a) a material adverse effect on the results of operations, business or financial condition of the Company, or (b) any material limitation on the ability of the Company to perform its obligations under, or the legality, validity or enforceability of, this Agreement. "Person" means an individual, corporation, partnership, joint venture, limited liability company, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Purchase Agreement" has the meaning indicated in the first Recital to this Agreement. "Purchased Shares" means the shares of Common Stock purchased by the Investors pursuant to the Purchase Agreement. Registration Rights Agreement -2- Execution Copy "Registrable Securities" means the Purchased Shares; provided, however, that Purchase Shares shall cease to be Registrable Securities upon any sale pursuant to a registration statement under the Securities Act, Section 4(1) of the Securities Act or Rule 144 promulgated under the Securities Act, or any sale, transfer or assignment in any manner to any Person who, by virtue of Section 13 hereof, is not entitled to the rights provided by this Agreement. "Registration Statement" means a registration statement filed under the Securities Act pursuant to this Agreement. "Securities Act" means the Securities Act of 1933, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shareholder Agreement" has the meaning indicated in the second Recital to this Agreement. Section 2. Short Form Demand Registrations. (a) On the first, second and third Anniversary Dates, the number of the Purchased Shares which remain subject to restrictions under Section 2.1 of the Shareholder Agreement shall be reduced pursuant thereto. Not earlier than sixty days prior to each Anniversary Date nor later than the later of (i) ninety days after that Anniversary Date or (ii) sixty days after the expiration of any stand-down period under paragraph (e) or Section 10 hereof, which prevented exercise of registration rights the Investor may notify the Company in writing that it intends to offer or cause to be offered for public sale all or any portion (subject to paragraph (c) below) of the Registrable Securities which previously have been released from the restrictions of Section 2.1 of the Shareholder Agreement or will be released from those restrictions on that Anniversary Date. (b) Provided that the registration of Registrable Securities under the Securities Act can be effected on Form S-3 (or any similar form promulgated by the Commission which permits short form registration using extensive incorporation by reference), the Company will use its best efforts to effect qualification and registration under the Securities Act on said Form S-3 or other short form registration of all or such portion of the Registrable Securities as the Investor shall specify. (c) Notwithstanding paragraph (a) above, the Company shall not be obligated to effect any registration unless the market value of the Registrable Securities to be sold in any such Registration Statement shall be estimated to be at least $2,000,000 at the time of filing such Registration Statement. (d) The obligations of the Company pursuant to this Section 2 shall expire the later of (i) ninety days after the third Anniversary Date or (ii) sixty days after the expiration of any stand-down period under paragraph (e) or Section 10 hereof. (e) If, prior to the time of any request by Investor pursuant to this Section 2, the Company has publicly announced its intention to register any of its securities for a public offering under the Securities Act, no registration of Registrable Securities shall be initiated Registration Rights Agreement -3- Execution Copy pursuant to this Section 2 until 120 days after the effective date of the registration so announced, unless the Company is no longer proceeding diligently to effect such registration. (f) The Company may include in each Registration Statement under this Section 2 any authorized but unissued shares of Common Stock (or authorized treasury shares) for sale by the Company, and any other Persons having a contractual, incidental "piggy back" right to include securities in a Registration Statement may include in each such Registration Statement, that Person's shares of Common Stock subject to such right (a); provided, however, that any such shares of Common Stock to be offered by the Company or such other Person shall be excluded from such Registration Statement to the extent that the managing underwriter of the offering (if the offering is underwritten) or the Investor (if the offering is not underwritten) (i) determines in good faith that the inclusion of such shares will interfere with the successful marketing of the Registrable Securities to be included in the Registration Statement and (ii) provides written notice of such determination to the Company. If a requested registration involves an underwritten public offering and the managing underwriter of such offering determines in good faith that the number of securities sought to be offered should be limited due to market conditions, then the number of securities to be included in such underwritten public offering shall be reduced to a number deemed satisfactory by such managing underwriter, provided that the securities to be excluded shall be excluded in the following order of priority: first, all or any portion of the securities held by any other Persons (other than the Investor) having a contractual, incidental "piggy back" right to include such securities in a Registration Statement; and second, all or any portion of the securities offered on behalf of the Company. Section 3. "Piggy-Back" Registrations. (a) In addition to its rights under Section 2 hereof, if at any time prior to the third Anniversary Date the Company shall determine to register any of its securities, other than an Excluded Registration, under the Securities Act (including pursuant to a demand of any stockholder of the Company exercising registration rights whose contractual rights do not prohibit inclusion of the Registrable Securities), the Company shall send to Investor written notice of such determination as soon as practicable, but in any event not less than 20 business days prior to the effective date of the Registration Statement. Subject to the terms of this Agreement, such notice shall offer the Investor the opportunity to register such number of shares of Registrable Securities as such Investor may request on the same terms and conditions as the other securities to be registered. In the event that the Investor desires to have its Registrable Securities included in such Registration Statement, it shall so advise the Company, in writing, stating the number of Registrable Securities that it desires be registered, within 10 business days after the date of such notice from the Company. The Investor shall have the right to withdraw such request for the inclusion of the Investor's Registrable Securities in a Registration Statement pursuant to this provision by giving written notice thereof to the Company of said withdrawal at least five business days prior to the effective date of the subject Registration Statement. The Company will, subject to the limits of this Section 3, use its best efforts to include in such Registration Statement all or any part of the Registrable Securities Investor requests to be registered therein. However, if, in connection with any offering involving an underwriting of the Common Stock to be issued by the Company, the managing underwriter shall impose in writing a Registration Rights Agreement -4- Execution Copy limitation on the number of shares of such Common Stock which may be included in any such Registration Statement because it has determined in good faith that the inclusion of such shares will interfere with successful marketing of the Common Stock and there is excluded from such Registration Statement all shares of Common Stock sought to be included therein (i) first by any holder thereof not having any such contractual, incidental registration rights, and (ii) second by any holder thereof having contractual, incidental registration rights subordinate and junior to the rights of the Investor, then the Company shall be obligated to include in such Registration Statement only the pro rata portion of all remaining securities, including the Registrable Securities, the sum of which equals the number of shares of Common Stock determined in good faith by the managing underwriters. (b) The rights granted by the Company under this Section 3 shall terminate on the earlier of (i) the third Anniversary Date or (ii) the date when the Company has effected two incidental piggy-back registrations for the benefit of the Investor hereunder. Notwithstanding the foregoing, if the managing underwriter limits the Registerable Securities to be registered pursuant to incidental piggy-back registration rights such that the Investor is unable to register at least 50% of the Registerable Securities it requested be included in such registration, then such registration shall not be considered an incidental piggy-back registration for the purposes of this Section 3(b)(ii). Section 4. Registration Procedures. If and whenever the Company is required by the provisions of this Agreement to effect the registration of Registrable Securities under the Securities Act, the Company will: (a) promptly prepare and file with the Commission within 90 days a Registration Statement with respect to such securities, and use its best efforts to cause such Registration Statement to become effective; (b) maintain the effectiveness of the Registration Statement until the earlier to occur of (i) the completion by the underwriters of the distribution pursuant to such Registration Statement or (ii) ninety days after the effectiveness of such Registration Statement; (c) provide Investor and any underwriter with as many copies of the preliminary and final prospectus as either party may reasonably request for the period effectiveness is required to be maintained under paragraph (b) above; (d) prepare and promptly file with the Commission any such amendment or supplement to such Registration Statement or prospectus as may be necessary to maintain effectiveness for the period under paragraph (b) or to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; Registration Rights Agreement -5- Execution Copy (e) prepare and file with the Commission, promptly upon the request of Investor, any amendments or supplements to such Registration Statement or prospectus which, in the opinion of counsel for Investor (and concurred in by counsel for the Company), is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Registrable Securities by Investor; (f) promptly notify Investor and any underwriter and (if requested by any such Person) confirm such notice in writing, of the happening of any event which makes any statement made in the Registration Statement or related prospectus untrue or which requires the making of any changes in such Registration Statement or prospectus so that such document will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (g) notify Investor promptly after the Company shall receive notice thereof, of the time when such Registration Statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (h) notify Investor promptly of any request by the Commission for the amending or supplementing of such Registration Statement or prospectus or for additional information; (i) advise Investor promptly after the Company shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (j) furnish to Investor a copy of all documents filed and all correspondence from or to the Commission in connection with any such offering of securities; (k) register or qualify the Registrable Securities covered by said Registration Statement under the applicable securities or "blue sky" laws of such jurisdictions as Investor may reasonably request; provided, that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the registration statement in any jurisdiction where it is not then so subject; and (l) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. Registration Rights Agreement -6- Execution Copy Section 5. Further Obligations of the Parties. (a) Whenever the Company is required to register Registrable Securities hereunder, it agrees that it shall also do the following: (i) Upon three days' prior written notice and at reasonable times during normal business hours and without undue interruption of the Company's business or operations, permit Investor or its counsel or other representatives to inspect and copy such corporate documents, records and properties as may reasonably be requested by them to enable them to exercise their due diligence responsibilities, and cause the Company's officers and agents to supply any information reasonably requested for that purpose; (ii) Enter into any reasonable underwriting agreement required by the proposed underwriters for the Investor and use its best efforts to facilitate the public offering of the securities; (iii) In connection with any underwritten public offering of such Registrable Securities, furnish to each selling holder a copy of: (A) an opinion of counsel for the Company, dated the effective date of the registration Statement; and (B) a "comfort letter" signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the Registration Statement, to the extent permitted by the applicable standards of the American Institute of Certified Public Accountants; in each case covering substantially the same matters with respect to the Registration Statement (and the prospectus included therein) and with respect to events subsequent to the date of the financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' "comfort letter" delivered to the underwriters in underwritten public offerings of securities in accordance with Statement on Auditing Standards No. 72, but only to the extent that the Company is required to deliver or cause the delivery of such opinion or "comfort letter" to the underwriter in the offering; and (iv) Use its best efforts to insure the obtaining of all necessary approvals from the National Association of Securities Dealers, Inc. (g) Investor agrees to timely provide to the Company, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Securities. The Company shall not be obligated to register Registrable Securities, pursuant to Registration Rights Agreement -7- Execution Copy Section 2 or Section 3 hereof if Investor fails promptly to provide the Company such information. Section 6. Indemnification of Investor Indemnified Persons. (a) In the event that the Company registers any of the Registrable Securities under the Securities Act, the Company will, to the extent permitted by law, indemnify and hold harmless each Investor Indemnified Person from and against any and all Liabilities, joint or several, to which they or any of them become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Investor Indemnified Persons for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any Liability, insofar as such Liabilities arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any filing with any state securities authority, in any preliminary or amended preliminary prospectus or in the final prospectus (or the Registration Statement or prospectus as from time to time amended or supplemented by the Company) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any state securities laws or regulations applicable to the Company and relating to action or inaction required of the Company in connection with such registration, unless (i) such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary or amended preliminary prospectus or final prospectus in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by Investor expressly for use therein or unless (ii) in the case of a sale directly by Investor (including a sale of such Registrable Securities through any underwriter retained by Investor to engage in a distribution solely on behalf of Investor), such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and Investor failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the Person asserting any such loss, claim, damage or liability in any case where such delivery is required by the Securities Act or any state securities laws. (b) Promptly after receipt by any Investor Indemnified Person of notice of the commencement of any action in respect of which indemnity may be sought against the Company, such Investor Indemnified Person will notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to such Investor Indemnified Person) and the payment of expenses insofar as such action shall relate to any alleged Liabilities in respect of which indemnity may be sought against the Company. (c) Such Investor Indemnified Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless the employment of such counsel has Registration Rights Agreement -8- Execution Copy been specifically authorized by the Company. The Company shall not be liable to indemnify any Investor Indemnified Person for any settlement of any such action effected without the Company's consent. The Company shall not, except with the approval of each Investor Indemnified Person being indemnified under this Section 6, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the parties being so indemnified of a release from all liability in respect to such claim or litigation. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which any Investor Indemnified Person makes a claim for indemnification pursuant to this Section 6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, then the Company and such Investor Indemnified Person will contribute to the aggregate Liabilities to which they may be subject (after contribution from others) in such proportion so that Investor Indemnified Person is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; but if it is determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such allocation may not be enforced, then the Company and such Investor Indemnified Person shall contribute to the aggregate Liabilities as is appropriate to reflect the relative fault of the Company on the one hand and of the Investor Indemnified Person on the other in connection with the statements or omissions which resulted in such Liabilities, as well as any other relevant equitable consideration. The relative fault of the Company on the one hand and of the Investor Indemnified Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Investor Indemnified Person on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Section 7. Indemnification of Company Indemnified Persons. (a) In the event that the Company registers any of the Registrable Securities under the Securities Act, the Investor, to the extent permitted by law, will indemnify and hold harmless the Company Indemnified Persons from and against any and all Liabilities, joint or several, to which they or any of them may become subject under the Securities Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse each such Company Indemnified Person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any Liability, insofar as such Liabilities arise out of or are based upon any untrue statement or alleged Registration Rights Agreement -9- Execution Copy untrue statement of a material fact contained in the Registration Statement or any filing with any state securities commission or agent, in any preliminary or amended preliminary prospectus or in the final prospectus (or in the Registration Statement or prospectus as from time to time amended or supplemented) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Investor expressly for use therein. (b) Promptly after receipt of notice of the commencement of any action in respect of which indemnity may be sought against such Company Indemnified Person, the Company will notify Investor in writing of the commencement thereof, and Investor shall, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to the Company) and the payment of expenses insofar as such action shall relate to the alleged Liabilities in respect of which indemnity may be sought against Investor. (c) Each Company Indemnified Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of Investor unless employment of such counsel has been specifically authorized by Investor. The Investor shall not be liable to indemnify any Company Indemnified Person for any settlement of any such action effected without its consent. Investor shall not, except with the approval of each party being indemnified under this Section 7, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the parties being so indemnified of a release from all liability with respect to such claim or litigation. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which the Company Indemnified Person makes a claim for indemnification pursuant to this Section 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding that this Section 7 provides for indemnification, in such case, then, the Company and Investor will contribute to the aggregate Liabilities to which they may be subject (after contribution from others) in such proportion so that Investor is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; but if it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such allocation may not be enforced, then the Investor and such Company Indemnified Person shall contribute to the aggregate Liabilities as is appropriate to reflect the relative fault of the Company on the one hand and of the Investor on the other in connection with the statements or omissions which resulted in such Liabilities, as well as any other relevant equitable consideration. The relative fault of the Company on the one hand and of the Investor on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement Registration Rights Agreement -10- Execution Copy of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Investor on the other, and each party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. Section 8. Rule 144. So long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, the Company will use its best efforts to file timely with the Commission such information as the Commission may require under either of said sections. The Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any successor exemptive rule hereinafter in effect) with respect to such Common Stock. The Company shall furnish to Investor forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company as filed with the Commission, and (iii) such other reports and documents as a Investor may reasonably request in availing itself of any rule or regulation of the Commission allowing a holder to sell any such Registrable Securities without registration. Section 9. Expenses of Registration. (a) In the case of any registration under Section 2 or 3 of this Agreement, the Company shall bear all costs and expenses of each such registration, including but not limited to printing, legal and accounting expenses, Securities and Exchange Commission and National Association of Securities Dealers, Inc. filing fees and expenses, and "blue sky" fees and expenses and the reasonable fees and disbursements of not more than one counsel for the selling holders of Registrable Securities in connection with the registration of their Registrable Securities; provided, however, that the Company shall have no obligation to pay or otherwise bear (i) the cost and expenses of procuring underwriters' insurance in connection with the sale of Registrable Securities, (ii) any portion of the fees or disbursements of more than one counsel for Investor in connection with the registration of the Registrable Securities, (iii) any portion of the underwriters' commissions or discounts attributable to the Registrable Securities being offered and sold by the Investor, or (iv) in the case of the registration under Section 2, any costs and expenses which (exclusive of underwriters' commissions or discounts) exceed an amount equal to 3% of the aggregate gross proceeds of the offering under the Registration Statement filed pursuant to Section 2. Notwithstanding the foregoing, any underwriters' commissions of any registration under Section 3 shall be borne pro rata by the Company, the other stockholders registering securities and the Investor, based upon the aggregate gross proceeds attributable to each such Person. (b) The Company shall pay all expenses in connection with any registration initiated pursuant to Section 2 or 3 which is withdrawn, delayed or abandoned at the request of the Company, unless such registration is withdrawn, delayed or abandoned solely because of any actions of the Investor. Registration Rights Agreement -11- Execution Copy Section 10. Right of Company To Delay Registration. For a period not to exceed 120 days, the Company shall not be obligated to prepare and file, or prevented from delaying or abandoning, a Registration Statement pursuant to this Agreement at any time when the Company, in its good faith judgment with advice of counsel, reasonably believes: (a) that the filing thereof at the time requested, or the offering of Registrable Securities pursuant thereto, would materially and adversely affect (a) a pending or schedule public offering of the Company's securities, (b) an acquisition, merger, recapitalization, consolidation, reorganization or similar transaction by or of the Company, (c) pre-existing and continuing negotiations, discussions or pending proposals with respect to any of the foregoing transactions, or (d) the financial condition of the Company, in view of the disclosure of any pending or threatened litigation, claim, assessment or governmental investigation which may be required; and (b) that the failure to disclose any material information with respect to the foregoing would cause a violation of the Securities Act or the Exchange Act. Section 11. Conditions to Registration Obligations. The Company shall not be obligated to effect the registration of Registrable Securities pursuant to Section 2 or 3 unless all holders of shares being registered consent to such reasonable conditions as the Company shall determine (with the advice of counsel) are required by law, including without limitation: (a) conditions prohibiting the sale of shares until the Registration Statement shall have been effective for a specified period of time; (b) conditions requiring the holder to comply with all prospectus delivery requirements of the Securities Act and with all anti-stabilization, anti-manipulation and similar provisions of Section 10 of the Exchange Act and any rules issued thereunder by the Commission, and to furnish to the Company information about sales made in such public offering; (c) conditions prohibiting the holders upon receipt of telegraphic or written notice from the Company (until further notice) from effecting sales of shares, such notice being given to permit the Company to correct or update a registration statement or prospectus; (d) conditions requiring that at the end of the period during which the Company is obligated to keep the Registration Statement effective under Section 4, the holders of shares included in the Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement that remain unsold, and requiring them to notify the Company of the number of shares registered that remain unsold immediately upon receipt of notice from the Company; and (e) conditions requiring the Investor to enter into an underwriting agreement in form and substance reasonably satisfactory to the Company, provided that (i) any managing Registration Rights Agreement -12- Execution Copy underwriter engaged by the Company in any offering made pursuant to Section 3 shall require the approval in writing of Investor, which consent shall not be unreasonably withheld, and (ii) any managing underwriter engaged by the Investor in any offering made pursuant to Section 2 shall require the approval in writing of the Company, which shall not be unreasonably withheld. Section 12. Market Stand-Off Agreement. (a) Investor agrees that in the event the Company proposes to offer for sale to the public any of its equity securities and (i) if Investor holds beneficially or of record five percent (5%) or more of the outstanding equity securities of the Company, (ii) if requested by the Company and an underwriter of Common Stock or other securities of the Company, and (iii) if all other "affiliates" and such 5% stockholders are requested by the Company and such underwriter to sign, and actually do sign, any agreement restricting the sale or other transfer of shares of the Company, then it will not sell, assign, donate, pledge, encumber, hypothecate, grant an option to, or otherwise transfer or dispose of, whether in privately negotiated transactions or to the public in open market transactions, any Common Stock or other securities of the Company held by it (except those securities which are to be included in such registration by the Company) during the 120 day period following the effective date of the registration statement of the Company filed under the Securities Act. Such agreement shall be in writing and in form and substance reasonably satisfactory to the Investor, the Company and such underwriter and pursuant to customary and prevailing terms and conditions. The Company may imposed stop-transfer instructions with respect to the Shares (or securities) subject to the foregoing restrictions until the end of said 120 day period. Section 13. Transferability of Registration Rights. The registration rights granted to Investor by this Agreement may not be assigned to any other Person, except that they may be assigned: (i) to any business entity controlled by, controlling, or under common control with Investor, (ii) to the ultimately surviving or controlling Person in connection with any merger, consolidation, sale of stock or sale of substantially all of the assets of Daifuku Co., Inc., or (iii) with the consent of the Company; provided in each case that such assignee or transferee agrees in writing to be bound by all of the provision of this Agreement. To the extent transferred or assigned as permitted herein, all references to Investor shall be interpreted to include any such transferee or assignee. Subject to this Section 13, this Agreement shall be binding upon and inure to the benefit of the Company and the Investor and their respective heirs, successors and assigns, except that the Company shall not have the right to delegate its obligations hereunder or to assign its rights hereunder or any interest herein without the prior written consent of the Investor. Section 14. Miscellaneous. (a) No Waiver; Cumulative Remedies. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Registration Rights Agreement -13- Execution Copy (b) Amendments, Waivers and Consents. Changes in or additions to this Agreement may be made and compliance with any covenant or provision set forth herein may be omitted or waived by the written agreement of the Company and Investor. (c) Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by fax (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses or fax numbers set forth below (or to such other address, person's attention or fax number as a party may designate by notice to the other parties given in accordance with this Section): (i) If to Company: Brooks Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Telecopier No.: (617) 262-2500 Telephone No.: (617) 262-2600 Attention: Ellen B. Richstone With a copy to: Brown, Rudnick, Freed & Gesmer One Financial Center Boston, MA 02111 Telecopier No.: (617) 856-8201 Telephone No.: (617) 856-8200 Attention: Lawrence M. Levy, Esquire (ii) If to the Investor: Daifuku America Corporation 6700 Tussing Road Reynoldsburg, Ohio 43068-5083 Tel: (614) 863-1888 Fax: (614) 863-9997 Attention: Mr. Natsuo Makino Registration Rights Agreement -14- Execution Copy With a copy to: Masuda, Funai, Eifert & Mitchell Two Continental Towers 1701 Golf Road Suite 800 Rolling Meadows, IL 60008-4254 Tel: (847) .734-8811 Fax: (847) 734-1089 Attention: Stephen M. Proctor, Esquire (d) Prior Agreements. This Agreement, constitutes the entire agreement between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. (e) Severability. The provisions of this Agreement, are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of a provision contained in this Agreement, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement or such other agreements; but this Agreement and such other agreements, shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provisions or part reformed so that it would be valid, legal and enforceable to the maximum extent possible. (f) Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware and without giving effect to choice of laws provisions thereof. (g) Headings. Articles, section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (h) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (i) Further Assurances. From and after the date of this Agreement, upon the request of any Investor or the Company, the Company and the Investor shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. Registration Rights Agreement -15- Execution Copy In Witness Whereof, the parties hereto have executed, or caused to be executed by their authorized official, effective as of the date first above written. BROOKS AUTOMATION, INC. Address: 15 Elizabeth Drive Chelmsford, MA 01824 By: /s/ Ellen B. Richstone ---------------------------------------- DAIFUKU AMERICA CORPORATION Address: 6700 Tussing Road Reynoldsburg, OH 43068 By: /s/ Itsuo Oyamatsu ---------------------------------------- Registration Rights Agreement -16- Execution Copy EX-10.01 5 b40853baex10-01.txt EMPLOYMENT AGREEMETN - ROBERT J. THERRIEN Exhibit 10.01 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into in Chelmsford, Massachusetts by and between Brooks Automation, Inc., a Delaware corporation (the "Company"), and Robert J. Therrien ("Executive"), as of September 30, 2001 (the "Effective Date"). RECITALS 1. The Company entered into an employment agreement with Executive dated October 1, 1994 that expires on September 30, 2001. 2. The Company desires to continue to retain Executive as its President and Chief Executive Officer of the Company, to make secure for itself the experience, abilities and services of Executive and to prevent the loss of such experience, services and abilities. 3. On October 23, 2001, the Company, Pontiac Acquisition Corp., a wholly-owned subsidiary of the Company and PRI Automation, Inc. ("PRI"), entered into an agreement and plan of merger (the "Merger Agreement"). Following the consummation of the merger, PRI will become a wholly-owned subsidiary of the Company (the "Merger"). 4. In consideration of the employment to be provided hereby and the amounts to be paid as provided herein, Executive desires to be employed by the Company and to agree with the Company as further provided herein. For and in consideration of the mutual promises, terms, provisions and conditions contained in this Agreement, the parties hereby agree as follows: 1. Duties. The Company shall employ Executive during the Employment Term as President and Chief Executive Officer of the Company. Executive shall have general management and control of the business, affairs and property of the Company and its direct and indirect subsidiaries and shall perform such duties of such offices as are provided for in the bylaws of the Company subject to the general supervision and direction of, and any policies and procedures established from time to time by, the Directors of the Company (the "Board"). Further, Executive shall, in consultation with the Board, identify and recommend to the Board a successor President and Chief Executive Officer prior to the expiration of the Employment Term. If at any time during the Employment Term, as defined herein, the Board appoints a new President and Chief Executive Officer, then upon Executive's request, the Board shall appoint the Executive as Chairman of the Board. As Chairman, Executive shall be an employee of the Company and have duties consistent with such position and as mutually agreed upon by the parties. 2. Term. Subject to Section 7 and the termination provisions contained therein, the term of the Executive's employment under this Agreement shall begin on the Effective Date and end on October 1, 2005 (the "Employment Term"). For all purposes of this Agreement, Executive shall be considered an employee of the Company whether Executive serves in the role of President and Chief Executive Officer or the role of Chairman. If Executive is appointed to the position of Chairman, Executive may elect to reduce his time commitment to the Company to no fewer than 2 days a week, provided Executive accepts a prorated reduction in his Adjusted Base Salary. In such event, all other provisions of this Agreement shall continue to apply and Executive shall continue to be deemed an employee of the Company under this Agreement. 3. Other Activities. Subject to Section 6 and the Non-Competition provisions contained therein, Executive may serve on corporate, civic, or charitable boards or committees, fulfill speaking engagements or manage personal investments; provided that such activities do not interfere or conflict with the performance of his duties or obligations under this Agreement. 4. Performance. During the Employment Term, Executive shall use his business judgment, skill and knowledge for the advancement of the Company's interests and to the discharge of his duties and responsibilities hereunder. Executive shall perform and discharge, faithfully, diligently and to the best of his ability, his duties and responsibilities hereunder. Subject to Section 2 hereof, Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company. 5. Compensation and Benefits. 5.1. Base Salary. As consideration for Executive's services performed during the Employment Term, the Company agrees to pay Executive a base salary of $500,000 per year (the "Base Salary") payable, in accordance with the payroll practices of the Company for its executives, and subject to federal and state tax withholding. The Base Salary shall be reviewed annually by the Compensation Committee of the Company Board of Directors (the "Committee") and increased as determined by the Committee (the Base Salary as adjusted from time to time shall be referred to as the "Adjusted Base Salary"). Subject to Section 2 hereof, in no event shall any adjustment reduce the Adjusted Base Salary below $500,000 per year. If the Merger is consummated, then Executive's Adjusted Base Salary shall be increased to $615,000 as of the effective date of the Merger. If the Merger is not consummated, then the Committee shall review the Adjusted Base Salary at that time. 5.2. Bonus. Executive may receive bonuses (the "Annual Bonus") from the Company when, as and if determined from time to time by the Committee. The Committee shall review the Annual Bonus annually. Any such Annual Bonuses paid to Executive shall be in addition to the Adjusted Base Salary. 5.3. Benefits. During the Employment Term, Executive shall be eligible for participation in and shall receive all benefits available under the Brooks Automation, Inc. 401(k) Plan, welfare benefit plans, practices, policies and programs (including medical, prescription, dental, disability, salary continuance, group life, accidental death and travel accident insurance plans and programs) normally available to other senior executives (except for any other retirement plans not specifically provided for in this Section 5.3) of the Company and the Supplemental Retirement Benefit described in Section 5.8 herein. 5.4. Medical Insurance. The Executive and his spouse shall be entitled to continued medical, dental and vision insurance following the Termination Date (as such term is defined in -2- Section 7.4 herein) until the later of the Executive's or his spouse's death. The medical, dental and vision coverage shall be substantially equivalent to the group medical insurance provided to Executive during the Employment Term. 5.5. Life Insurance. The Company shall, during the Employment Term, maintain insurance protection on the life of Executive as follows: (i) a policy with death benefits of not less than $2,000,000 payable to a beneficiary selected by Executive, (ii) a policy with death benefits of not less than $1,000,000 payable to the Company, (iii) two policies with combined death benefits of not less than $5,000,000 held in the Brooks Automation, Inc. Rabbi Trust (the "Rabbi Trust") dated January 1, 2000, subject to the terms and conditions therein, and (iv) two divided ownership life insurance policies with combined death benefits of not less than $1,241,572 payable in accordance with the terms and conditions set forth in the Collateral Assignment Divided Ownership Plan Agreements by and between the Executive and the Company dated July 20, 1995. Executive shall be entitled upon the later of the expiration of the Employment Term, or any subsequent employment agreement with the Company, to assume ownership of the policies described in subsections (i) and (iv) of this Section; provided that the transfer of the policies described in (iv) shall be in accordance with the terms and conditions of the Collateral Assignment Divided Ownership Plan Agreements. 5.6. Automobile. During the Employment Term, the Company shall continue to provide Executive with an automobile of the type currently provided to him for his use in connection with his employment hereunder, and shall pay all expenses related thereto. 5.7. Business Expenses. Executive shall be entitled to receive prompt reimbursement during the Employment Term for all reasonable employment-related expenses incurred or paid by him in the performance of his services, subject to reasonable substantiation and documentation. 5.8. Supplemental Retirement Benefit. Subject to Section 8, Executive shall be entitled to the following Supplemental Retirement Compensation (the "Supplemental Retirement Benefit") equal to the product of (i) the Final Adjusted Base Salary as defined herein, (ii) times one and one-half, and (iii) times the number of years of service by Executive to the Company, with appropriate adjustment for his last year of service if it is less than a full year ("Year of Service"). The Final Adjusted Base Salary shall equal either: (x) if the PRI Merger is not consummated, the greater of (i) the Adjusted Base Salary in effect immediately prior to the Termination Date, or (ii) $500,000; or (y) if the Merger with PRI is consummated, then the Final Adjusted Base Salary shall be the greater of (i) Adjusted Base Salary in effect immediately prior to the Termination Date, or (ii) $615,000. For purposes of calculating the total Supplemental Retirement Benefit, the Final Adjusted Base Salary shall be appropriately adjusted only if at any time after the Effective Date through October 1, 2003 the Executive reduces his work schedule, in which case the Final Adjusted Base Salary shall be reduced to reflect the pro-rata reduction in Base Salary as described in Section 2 herein. For purposes of calculating the total Supplemental Retirement Benefit, there shall be no reduction of Final Adjusted Base Salary for any periods after October 1, 2003 regardless of whether the Executive reduces his work schedule as provided for in Section 2 herein. There shall be no reduction to Final Adjusted Base Salary for any periods prior to the Effective Date. -3- 5.8.1. Merger/Funding. If the Merger with PRI is consummated, then (A) the Company shall make a contribution to the Rabbi Trust, no later than the end of the fiscal quarter following the Merger effective date, of an amount equal to the then difference between (x) the total amount of assets held in the Rabbi Trust and (y) Executive's accrued Supplemental Retirement Benefit; and (B) the Company shall contribute, on a quarterly basis beginning with the quarter following the Merger effective date, an amount to the Rabbi Trust sufficient to provide that the then total amount of assets held in the Rabbi Trust are equal to the value of Executive's then accrued Supplemental Retirement Benefit. 5.8.2. Payment. The Supplemental Retirement Benefit shall be payable in an amount equal to 1/12 of his Final Adjusted Base Salary, for a period of months equal to the product of (x) one and one half (y) times that number of months in the Years of Service. The first payment shall be paid to the Executive on the first day of the month next beginning after the Termination Date, except that if the Termination Date falls on or after the twentieth day of a month, such payment shall be paid on the first day of the second month next beginning. 5.8.3. Merger/Payment. If the Merger is consummated, then the Supplemental Retirement Benefit shall be paid in a lump sum amount on the first day of the month next beginning after the Termination Date, if the Merger is not consummated, (i) the Committee shall review the Supplemental Retirement Benefit payment provisions at that time, and (ii) in the event Executive dies or becomes permanently disabled, Executive, or his heirs or attorney in fact if Executive is deceased or incapable, physically or mentally, of so acting, may elect to receive the entire Supplemental Retirement Benefit, or the remaining unpaid balance thereof, over a period of not less than four (4) years upon written notice to the Board. 6. Proprietary Rights and Non Competition. 6.1. Confidentiality. Executive will maintain in confidence and will not disclose or use, either during or after the Employment Term, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of the Company. For purposes of this Agreement, "Proprietary Information" shall mean any information, not generally known in the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by Executive in connection with this Agreement. Such Proprietary Information includes, without limitation, software, technical and business information relating to the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to Executive's performance under this Agreement, and any other information which is identified as confidential by the Company, but only so long as the same is not generally known in the relevant trade or industry. 6.2. Inventions. For purposes of this Agreement, "Inventions" shall mean any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions shall include, without limitation, all designs, discoveries, -4- formulae, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 6.3. Disclosure and Assignment of Inventions. Executive will promptly disclose and describe to the Company all Inventions which he may solely or jointly conceive, develop or reduce to practice during the Employment Term (i) which relate at the time of conception, development, or reduction to practice of the Invention to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work performed by Executive for the Company (the "Company Inventions"). Executive hereby assigns all of his right, title and interest worldwide in the Company Inventions and in all intellectual property rights based upon the Company Inventions; provided, however, that Executive does not assign or agree to assign any Inventions, whether or not relating in any way to the Company business or demonstrably anticipated research and development, which were made by him prior to the date of this Agreement, or which were developed by him independently during the term of this Agreement and not under the conditions stated in subparagraph (ii) above. 6.4. Documents and Materials. Upon termination of this Agreement or at any other time upon the Company's request, Executive will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to him by the Company, prepared by him for the Company or otherwise relating to the Company's business, including, without limitation, all written and tangible material in his possession incorporating any Proprietary Information. 6.5. Competitive Employment. During the Employment Term and for a period of two (2) years thereafter (collectively, the "Non-Competition Period"), Executive will not engage, directly or indirectly, in any employment, consulting, or other activity in any business competitive with the Company and its subsidiaries, subject to the following exceptions: (i) that nothing in this Section 6.5 shall preclude Executive from serving as a director of any other corporation, and (ii) nothing in this Section 6.5, subject to Section 6.9 herein, shall preclude Executive from making passive investments in securities of any unrelated business enterprise or, if the proposed investment is in a related business enterprise, then after disclosure to and approval by the Board. 6.6. Nonsolicitation. In addition to and without limiting the foregoing, during the term of the Non-Competition Period, Executive shall not attempt to or assist any other person in attempting to do any of the following: (i) hire any director, officer, Executive, or agent of the Company or any subsidiary or affiliate, or encourage any such person to terminate such relationship with the Company or any subsidiary or affiliate, as the case may be; (ii) encourage any customer, client, supplier or other business relationship of the Company or any subsidiary or affiliate to terminate or alter such relationship, whether contractual or otherwise, to the disadvantage of the Company or any subsidiary or affiliate; as the case may be; (iii) encourage any prospective customer or supplier not to enter into a business relationship with the Company or any subsidiary or affiliate; (iv) impair or attempt to impair any relationship, contractual or otherwise, written or oral, between the Company or any subsidiary or affiliate and any customer, supplier or other business relationship of the Company or any subsidiary or affiliate or; (v) sell or -5- offer to sell or assist in or in connection with the sale to any customer or prospective customer of the Company or any subsidiary or affiliate any products of the type sold or rendered by the Company or any subsidiary or affiliate, for which products Executive had material dealings in the performance of Executive's duties within the period two years before Executive's termination. 6.7. Acts to Secure Proprietary Rights. 6.7.1. Further Acts. Executive agrees to perform, during and after the Employment Term, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Inventions. Such acts may include, without limitation, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 6.7.2. Appointment of Attorney-in-Fact. In the event that the Company is unable, for any reason whatsoever, to secure Executive's signature to any lawful and necessary documents required to apply for or execute any patent, copyright or other applications with respect to any the Company Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), Executive hereby irrevocably appoints the Company and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by him, intending hereby to create a so-called "durable power" which will survive any subsequent disability. 6.8. No Conflicting Obligations. Executive's performance of his duties and obligations under this Agreement does not breach and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him. 6.9. Corporate Opportunities. Executive agrees that he will first present to the Board, for its acceptances or rejection on behalf of the Company, any opportunity to create or invest in any company which is or will be involved in providing or furnishing semiconductor or flat panel display substrate handling equipment, systems, components, products, software and services which comes to his attention and in which he, or any affiliate, might desire to participate. If the Board rejects the same or fails to act thereon in a reasonable time, Executive shall be free to invest in, participate or present such opportunity to any other person or entity. 7. Termination Events. 7.1. Termination by the Company. At the election of the Company, this Agreement shall terminate and any and all rights and obligations of the Company and Executive hereunder shall cease and be completely void except as specifically set forth in this Agreement, upon the earliest to occur of the following: (i) the death or "long-term disability" of Executive; or (ii) the termination of Executive by the Company with "cause" under this Agreement and delivery of written notice in accordance with Section 13. -6- 7.1.1. Long-Term Disability. For purposes of this Agreement, "long-term disability" shall mean the disability of Executive which prevents Executive from devoting to the business of the Company his full-time subject to Section 2 herein, best efforts, skill and attention, and such condition continues for a period of two hundred seventy (270) consecutive days. 7.1.2. Cause. For purposes hereof, "cause" shall include, without limitation, the occurrence of any of the following events during the Employment Term of this Agreement: (i) habitual neglect of material duties assigned to Executive hereunder, which is not remedied within thirty (30) days of receipt of written notice thereof from the Company; (ii) fraud or embezzlement committed by Executive against the Company; and (iii) conviction of a crime classified as a felony under any Federal, state or local law with all appeals relating thereto having been unsuccessfully exhausted and all appeal periods being lapsed. 7.2. Termination Without Cause. This Agreement shall terminate and any and all rights and obligations of the Company and Executive hereunder shall cease and be completely void except as specifically set forth in this Agreement, upon delivery of written notice by the Company to the Executive in accordance with Section 13. 7.3. Termination by Executive for Good Reason. This Agreement shall terminate and any and all rights and obligations of the Company or Executive hereunder shall cease and be completely void except as specifically set forth in this Agreement, upon the Executive's resignation for "good reason"; provided that Executive shall provide the Company with written notice of the occurrence of such action he believes constitutes Good Reason and the Company has failed to remedy such action within thirty (30) days of its receipt of such notice 7.3.1. Good Reason. "Good Reason" shall mean the Company has taken action that serves to adversely change Executive's status by a reduction in title or a reduction in duties without Executive's consent. 7.4. Termination by Executive following a Change of Control. This Agreement shall terminate and any and all rights and obligations of the Company or Executive hereunder shall cease and be complete void except as specifically set forth in the Agreement upon the Executive's resignation or termination following a "change of control." 7.4.1. Change of Control. For purposes hereof a "change of control" of the Company shall be deemed to have occurred if: (i) any "person" or group of affiliated "persons" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities -7- representing more than 20% of the total voting power represented by the Company's then outstanding voting securities (except in connection with a merger, which the Board approves and that the Executive consents to and approves or a merger in respect of which, pursuant to Section 251(f) of the Delaware General Corporation law, as now in effect and as the same may be amended from time to time, no vote of the stockholders of Company is required); (ii) the Board approves, and the stockholders of the Company approve, if necessary, a plan of complete liquidation of the Company, or the Company sells or otherwise disposes of substantially all of its assets to any "person" or group of affiliated "persons" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act); or (iii)individuals who, as of the date hereof, constitute the Company Board (the "Incumbent Company Board") cease for any reason to constitute at least a majority of the Company Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by Company's stockholders, was approved by a vote of at least a majority of the directors comprising the Incumbent Company Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Company Board. 7.5. Termination Date. The term "Termination Date" shall mean the earlier of (i) the expiration of the Employment Term or (ii) if the date Executive's services are terminated (A) by his death, then the date of his death, or (B) by his Long-Term Disability, then the date of the occurrence of his Long-Term Disability, or (C) for any other reason, then the date on which such termination is to be effective pursuant to the notice of termination to be given by the party terminating the employment relationship. 8. Effect of Termination. 8.1. Termination for Death or Disability. It is expressly acknowledged and agreed that if Executive's employment shall be terminated due to Executive's death or Long-Term Disability, all of the obligations under Sections 1 through 5 of the Company and Executive shall cease except that the Company shall pay, or provide the following benefits, to Executive or his estate, as the case may be, without further recourse or liability to the Company: (i) an amount equal to the sum of Executive's earned but unpaid Adjusted Base Salary and prorata Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year Annual Bonuses; -8- (ii) an amount equal to the value of Executive's accrued vacation pay; (iii) his Supplemental Retirement Benefit in accordance with Section 5.8; (iv) in the event of Long Term Disability, continued life insurance coverage in accordance with Section 5.5 until October 1, 2005; and (v) continued medical, dental and vision insurance in accordance with Section 5.4. 8.2. Termination for Cause. It is expressly acknowledged and agreed that if Executive is terminated by the Company for Cause, all of the obligations under Sections 1 through 5 of the Company and Executive shall cease except that the Company shall pay immediately after the Termination Date the following amounts to the Executive without further recourse or liability to the Company: (i) an amount equal to the sum of Executive's earned but unpaid Adjusted Base Salary; and (ii) an amount equal to the value of Executive's accrued vacation days. 8.3. Termination Without Cause. It is expressly acknowledged and agreed that if Executive's employment shall be terminated by Company for any reason, except as set forth in Section 7.1, at any time prior to the expiration of the Employment Term, all of the obligations under Sections 1 through 5 of the Company and Executive shall cease except that the Company shall pay, or provide the following benefits, to Executive without further recourse or liability to the Company: (i) an amount equal to the sum of the Executive's earned but unpaid Adjusted Base Salary and prorata Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year's Annual Bonuses; (ii) his then current Annual Base Salary and Annual Bonus, which in no case shall be less than the average of his most recent three year's Annual Bonuses determined in accordance with Section 2 for the remaining balance of the Employment Term; (iii) an amount equal to the value of Executive's accrued vacation pay; (iv) his Supplemental Retirement Benefit in accordance with Section 5.8; (v) continued life insurance coverage in accordance with Section 5.5 until October 1, 2005; (vi) continued medical, dental and vision insurance in accordance with Section 5.4; and -9- (vii) immediately vest all options to purchase Company stock and, notwithstanding the terms of any option agreement or option plan to the contrary, the exercise period for all options, except those options granted prior to September 30, 2001 the extension of which would result in a charge to earnings or other adverse accounting consequence determined in the reasonable discretion of the Committee, shall expire upon the earlier of (x) the last day of the 24th month following the Termination Date, or (y) the expiration of the option term. 8.4. Termination by Executive For Good Reason. It is expressly acknowledged and agreed that if Executive's employment shall be terminated because the Executive resigns for Good Reason, all of the obligations under Sections 1 through 5 of the Company and Executive shall cease except if the Company shall pay, or provide the following benefits, to Executive without further recourse or liability to the Company: (i) an amount equal to the sum of the Executive's earned but unpaid Adjusted Base Salary and prorata Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year's Annual Bonuses; (ii) his then current Annual Base Salary and Annual Bonus, which in no case shall be less than the average of his most recent three year's Annual Bonuses determined in accordance with Section 2 for the remaining balance of the Employment Term; (iii) an amount equal to the value of Executive's accrued vacation pay; (iv) his Supplemental Retirement Benefit in accordance with Section 5.8; (v) continued life insurance coverage in accordance with Section 5.5 until October 1, 2005; (vi) continued medical, dental and vision insurance in accordance with Section 5.4; and (vii) immediately vest all options to purchase Company stock and, notwithstanding the terms of any option agreement or option plan to the contrary, the exercise period for all options, except those options granted prior to September 30, 2001 the extension of which would result in a charge to earnings or other adverse accounting consequence determined in the reasonable discretion of the Committee, shall expire upon the earlier of (x) the last day of the 24th month following the Termination Date, or (y) the expiration of the option term. 8.5. Termination by Executive following a Change of Control. It is expressly acknowledged and agreed that if Executive's employment shall be terminated because the Executive resigns following a Change of Control, all of the obligations under Sections 1 through -10- 5 of the Company and Executive shall cease except that the Company shall pay, or provide the following benefits, to Executive without further recourse or liability to the Company: (i) a lump sum severance payment (the "Severance Payment") equal to three (3) times Executive's Adjusted Base Salary and Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year's Annual Bonuses; (ii) an amount equal to the sum of the Executive's earned but unpaid Adjusted Base Salary and prorata Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year's Annual Bonuses; (iii) an amount equal to the value of Executive's accrued vacation pay; (iv) his Supplemental Retirement Benefit in accordance with Section 5.8; (v) continued life insurance coverage in accordance with Section 5.5 until October 1, 2005; (vi) continued medical, dental and vision insurance in accordance with Section 5.4; and (vii) immediately vest all options to purchase Company stock and, notwithstanding the terms of any option agreement or option plan to the contrary, the exercise period for all options, except those options granted prior to September 30, 2001 the extension of which would result in a charge to earnings or other adverse accounting consequence determined in the reasonable discretion of the Committee, shall expire upon the earlier of (x) the last day of the 24th month following the Termination Date, or (y) the expiration of the option term. 8.6. Termination by Executive Without Good Reason. It is expressly acknowledged and agreed that if Executive resigns without Good Reason, except as set forth in Section 7.4, prior to the expiration of the Employment Term, all of the obligations under Sections 1 through 5 of the Company and Executive shall cease except that the Company shall pay, or provide the following benefits, to Executive without further recourse or liability to the Company: (i) an amount equal to the sum of the Executive's earned but unpaid Adjusted Base Salary and prorata Annual Bonus, which shall be the greater of (i) his prior year's Annual Bonus, or (ii) the average of his most recent three year's Annual Bonuses; (ii) an amount equal to the value of Executive's accrued vacation pay; (iii) his Supplemental Retirement Benefit in accordance with Section 5.8; -11- (iv) continued life insurance coverage in accordance with Section 5.5 until October 1, 2005; and (v) continued medical, dental and vision insurance in accordance with Section 5.4. 8.7. 280G Protection. If any amounts payable under, or benefits resulting from, this Agreement are subject to the excise tax imposed under Code Section 4999 on "excess parachute payments", the Company will in good faith compute the excise tax imposed under Code Section 4999 (the "Excise Tax") and shall pay that amount to the Executive, including any federal, state, local and excise taxes imposed on the foregoing payment under this Agreement. The effect of such calculation will be to provide the Executive with a payment under this Agreement that is economically equivalent to the payment he would have received but for the imposition of the excise tax. The calculations under this Section 8.7 will be made in a manner consistent with the requirements of Code Section 280G and 4999, as in effect at the time the calculations are made. (a) The Gross-up Payment or portion thereof provided for above shall be paid no later than the thirtieth (30th) day following the Termination Date; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by an Independent Accountant (the "Accountant"), of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be determined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (b) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree an arbitrator, selected in accordance with the procedure set forth in Section 14, shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (c) The Company shall be responsible for all charges of the Accountant. -12- (d) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this section. 8.8. Fringe Benefits. To the extent any perquisite or fringe benefit that Company is obligated to continue hereunder after the termination of Executive's employment cannot be so continued due to legal impediment then, in such event, Company shall, in lieu thereof, pay in cash to Executive the equivalent cost to Company of such perquisite or fringe benefit, with any such payments to be made at the time the payment of such perquisite or fringe benefit would normally be paid. 9. Assignment. Neither the Company nor Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of Executive if the Company shall hereafter effect a reorganization, consolidate with, or merge into any other entity or transfer all or substantially all of its properties or assets to any other person or entity. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, executors, administrators, heirs and permitted assigns. 10. Indemnification. (a) To the maximum extent permitted under Massachusetts law as from time to time in effect, the Company hereby agrees to indemnify Executive and hold him harmless from, against and in respect of any and all damages, deficiencies, actions, suits, proceedings, demands, assessments, excise taxes, judgments, claims, losses, costs, expenses, obligations and liabilities arising from or related to the performance of Executive's duties and responsibilities under this Agreement. (b) The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering Executive during this employment and for six (6) years following the Termination Date. The amount of coverage shall be reasonable in relation to Executive's position and responsibilities during the Employment Term but in no event shall the amount of coverage be less than $50,000,000 in the aggregate, provided that such coverage is available at reasonable cost. 11. Waiver. The waiver by any party hereto of a breach of any provision of this Agreement by any other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. 12. Severability. The parties agree that each provision contained in this Agreement shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject, such provisions shall be construed by the appropriate judicial -13- body by limiting and reducing it or them, so as to be enforceable to the extent compatible with the applicable law. 13. Notices. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing, addressed as provided below and actually delivered at said address: If to Executive, to him at the following address: Robert J. Therrien 300 Boylston Street, #702 Boston, MA 02116 If to the Company, to it at the following address: Brooks Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Attn: Senior Vice President Finance and Administration/Chief Financial Officer or to such other person or address as to which either party may notify the other in accordance with this Section 13. 14. Arbitration. In the event of a dispute between the parties as to the meaning or interpretation of this Agreement, or the performance of either party hereunder, either party may submit the matter for arbitration in Boston, Massachusetts, to the American Arbitration Association, which is expressly permitted and required hereby, to include the reasonable costs of arbitration, including attorney fees, of the prevailing party, in its decision. If the nonprevailing party should then fail to comply with such decision, the reasonable costs of enforcement, including attorneys fees, shall be paid to the prevailing party. Such costs shall specifically include any judicial proceeding to confirm such decision. 15. Applicable Law. This Agreement shall be interpreted and construed in accordance with the laws of the Commonwealth of Massachusetts. 16. Remedies. Executive acknowledges that a breach of any of the promises or agreements contained herein could result in irreparable and continuing damage to the Company for which there may be no adequate remedy at law, and the Company shall be entitled to seek injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). -14- 17. Survival. Notwithstanding any provisions of this Agreement to the contrary, the obligations of Executive and the Company pursuant to Sections 6 through 18 hereof shall each survive termination of this Agreement. 18. Effect of Headings. Any title of a section heading contained herein is for convenience of reference only, and shall not affect the meaning of construction or any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. /s/ Robert J. Therrien ------------------------------------ Robert J. Therrien BROOKS AUTOMATION, INC. By: /s/ /Ellen B. Richstone -------------------------------- Ellen B. Richstone Senior Vice President Finance and Administration/Chief Financial Officer -15- EX-10.25 6 b40853baex10-25.txt LEASE BETWEEN SILVER OAKS, LLC & THE COMPANY Exhibit 10.25 LEASE between SILVER OAKS, LLC, a California limited liability company and BROOKS AUTOMATION, INC., a Delaware corporation 13931 BALBOA BOULEVARD SYLMAR, CALIFORNIA TABLE OF CONTENTS
Page ---- 1. Parties .............................................................. 1 2. Premises ............................................................. 1 3. Term ................................................................. 1 3.1 Term ............................................................. 1 3.2 Delay in Possession .............................................. 1 3.3 Early Possession ................................................. 2 3.4 Tenant's Election to Complete .................................... 2 4. Rent ................................................................. 3 4.1 Base Rent ........................................................ 3 4.2 Certain Expenses ................................................. 3 4.3 Certain Capital Items ............................................ 4 4.4 Effect of Exercise of Option to Extend on Payment of Certain Amounts Under Section 4.3 ...................................... 5 5. Security Deposit ..................................................... 6 6. Use .................................................................. 6 6.1 Use .............................................................. 6 6.2 Compliance with Law .............................................. 6 6.3 Condition of Premises ............................................ 7 7. Maintenance, Repairs and Alterations ................................. 8 7.1 Tenant's Obligations ............................................. 8 7.2 Surrender ........................................................ 9 7.3 Landlord's Rights ................................................ 9 7.4 Landlord's Obligations ........................................... 10 7.5 Alterations and Additions ........................................ 10 8. Insurance; Indemnity ................................................. 15 9. Damage or Destruction ................................................ 19
-i- 9.1 Definitions.......................................................19 9.2 Partial Damage -- Insured Loss....................................19 9.3 Partial Damage -- Uninsured Loss..................................20 9.4 Total Destruction.................................................20 9.5 Damage Near End of Term...........................................21 9.6 Abatement of Rent; Tenant's Remedies..............................21 9.7 Termination -- Advance Payments...................................22 9.8 Waiver............................................................22 10. Real Property Taxes....................................................22 10.1 Definition of "Real Property Tax".................................22 10.2 Payment of Taxes..................................................23 10.3 Personal Property Taxes...........................................24 10.4 Additional Provisions Regarding Real Property Taxes...............24 11. Utilities..............................................................24 12. Assignment and Subletting..............................................25 12.1 Landlord's Consent Required.......................................25 12.2 Procedure.........................................................25 12.3 Tenants Other Than Individuals....................................26 12.4 Tenant Affiliate..................................................27 12.5 No Release of Tenant..............................................27 12.6 Terms and Conditions Applicable to Subletting.....................27 12.7 Attorney's Fees...................................................29 13. Defaults; Remedies.....................................................29 13.1 Defaults..........................................................29 13.2 Remedies..........................................................30 13.3 Default by Landlord...............................................32 13.4 Late Charges......................................................32 14. Condemnation...........................................................33 15. Broker's Commissions...................................................34 16. Estoppel Certificate...................................................34 17. Landlord's Liability...................................................35 -ii- 18. Severability...................................................... 36 19. Interest on Past-due Obligations.................................. 36 20. Time of Essence................................................... 36 21. Additional Rent................................................... 36 22. Incorporation of Prior Agreements; Amendments..................... 36 23. Notices........................................................... 37 24. Waivers........................................................... 38 25. Recording......................................................... 38 26. Holding Over...................................................... 38 27. Cumulative Remedies............................................... 39 28. Covenants and Conditions.......................................... 39 29. Binding Effect; Choice of Law..................................... 39 30. Subordination; Attornment; Non-Disturbance........................ 39 30.1 Subordination................................................ 39 30.2 Attornment................................................... 39 30.3 Non-Disturbance.............................................. 39 30.4 Self-Executing............................................... 40 31. Attorney's Fees................................................... 40 32. Landlord's Access................................................. 41 33. Auctions.......................................................... 41 34. Signs............................................................. 41 -iii- 35. Merger................................................ 42 36. Consents.............................................. 42 37. [Intentionally Omitted]............................... 42 38. Quiet Possession...................................... 42 39. Options............................................... 42 39.1 Definition....................................... 42 39.2 Options Personal; Multiple Options............... 43 39.3 Effect of Default on Options..................... 43 39.4 First Option .................................... 43 39.5 Second Option ................................... 44 39.6 Fair Market Rent ................................ 45 40. [Intentionally Omitted] .............................. 47 41. Security Measures .................................... 47 42. Easements ............................................ 47 43. Performance Under Protest ............................ 48 44. Authority ............................................ 48 45. Cashier's Checks ..................................... 48 46. Amendments to Lease .................................. 48 47. Storage Tanks ........................................ 48 48. Tenant's Covenants Regarding Hazardous Materials ..... 49 48.1 Landlord's Prior Consent ........................ 49 48.2 Compliance with Hazardous Materials Laws ........ 50 48.3 Hazardous Materials Removal ..................... 51 48.4 Notices ......................................... 51 48.5 Indemnification of Landlord ..................... 52 48.6 Preexisting Conditions .......................... 52
48.7 Studies .................................................. 52 49. [Intentionally Omitted] ....................................... 53 50. Easements and Restrictions of Record .......................... 53 51. Offer ......................................................... 53 52. Waiver of Trial by Jury ....................................... 53 53. ERISA ......................................................... 53 54. Parking ....................................................... 54 55. Landlord Shell Improvements ................................... 54 56. Tenant Improvements ........................................... 54 57. Additional Mezzanine Space .................................... 54 58. Self Help ..................................................... 54
Exhibit "A" Premises (Paragraph 2) Exhibit "B" Work Letter Exhibit "C" Location and Design of Above-Ground Tank Exhibit "D" Description of Initial Plans Exhibit "E" Form of Memorandum of Lease Exhibit "F" Form of Subordination Agreement Exhibit "G" Certain Permitted Items Exhibit "H" Assessment Allocation Mechanism Exhibit "I" Certain CC&R Provisions Exhibit "J" Hazardous Substance Reports
LEASE 1. Parties. This Lease (the "Lease"), dated, for reference purposes only; May 30, 2001, is made by and between SILVER OAKS LLC, a California limited liability company (herein called "Landlord"), and BROOKS AUTOMATION, INC., a Delaware corporation (herein called "Tenant"). 2. Premises. Landlord hereby leases to Tenant and Tenant leases from Landlord for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Los Angeles, State of California, commonly known as 13931 Balboa Boulevard, Sylmar, California, consisting of the building (the "Building") on the property containing 60,096 square feet of area (which area is comprised of a 6,000 square foot mezzanine area and a 54,096 square foot building footprint) and adjacent land and more particularly delineated on Exhibit "A" attached hereto and by this reference incorporated herein. Said real property including the land and all improvements therein, is herein called the "Premises." The Premises may from time to time be under common ownership or management with one or more adjacent properties. 3. Term. 3.1 Term. The term of this Lease shall be for ten (10) years commencing on October 1, 2001 (the "Commencement Date") and ending on September 30, 2011 unless extended or sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding that Commencement Date, if for any reason Landlord cannot deliver possession of the Premises to Tenant with Landlord's Improvements (as defined below) substantially completed by September 15, 2001 (the "Out Date"), Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder, but in such case, Tenant shall not be obligated to pay rent until possession of the Premises is tendered to Tenant and the initial term shall be extended one (1) day for every day between the Commencement Date and the date on which Landlord delivers the Premises to Tenant with Landlord's Improvements substantially completed; provided, however, that if Landlord shall not have delivered possession of the Premises within thirty (30) days after the Out Date, Tenant may, at Tenant's option, by notice in writing to Landlord within ten (10) business days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Tenant is not received by Landlord within said ten (10) business day period, Tenant's right to cancel this Lease hereunder shall -1- terminate and be of no further force or effect. In addition to the delay in commencement of rent as provided in this Paragraph 3.2, in the event that substantial completion of Landlord's Work does not occur by the Out Date, then Tenant shall be entitled to a rent credit equal to one (1) day's Base Rent for each one (1) full day from the period from the Out Date until the date upon which Landlord delivers possession of the Premises to Tenant with Landlord's Improvements substantially completed. The Out Date shall be extended by one (1) day far every day Landlord is delayed in substantially completing the Landlord Improvements due to (a) the acts or omissions of Tenant or its agents, employees, or contractors, (b) inability to obtain, or delays in obtaining, necessary permits and/or (c) any other one or more events beyond Landlord's reasonable control. 3.3 Early Possession. If Tenant occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date. Landlord shall reasonably cooperate with Tenant in Tenant's efforts to obtain any municipal approvals required for Tenant's early occupancy. Tenant shall be permitted to enter the Premises on the date that is the later of (i) the date upon which Tenant obtains permits for construction of the Tenant Improvements described in the Space Plans (as defined in Exhibit "B"), or (ii) the first business day after full execution and delivery of this Lease, and prior to the Commencement Date without the obligation for payment of rent for the purpose of constructing the Tenant Improvement; provided that (a) Tenant will not unreasonably interfere with Landlord's construction of the Landlord Improvements, (b) Tenant first provides Landlord with all insurance required by the terms of this Lease, and (c) all construction by Tenant shall be performed in accordance with the terms of this Lease. Without limiting any other provision of this Lease, Landlord shall not be responsible for damages or loss to any work performed by Tenant or to Tenant's personal property or the personal property of Tenant's contractor's, employees or agents which occurs during such period of early access. 3.4 Tenant's Election to Complete. In the event that Landlord's Improvements are not substantially completed by the Out Date, and Tenant has not exercised its cancellation option under Paragraph 3.2, Tenant may at any time thereafter give Landlord and Landlord's Lender (as defined below) written notice of Tenant's intent to take over construction of the Landlord Improvements ("Tenant's Take Over Notice"). In the event that the Landlord Improvements are not substantially completed within thirty (30) days after Tenant's Take Over Notice, Tenant shall have the right to complete Landlord's Improvements subject to the following limitations: (a) Tenant must complete the Landlord's Improvements in accordance with the then existing plans and specifications approved by Landlord; (b) Tenant must use qualified contractors and subcontractors; (c) the work by Tenant on the Landlord's Improvements must be -2- prosecuted in a workmanlike manner; and (d) the work on the Landlord's Improvements must be completed lien free in accordance with the terms of this Lease. 4. Rent. 4.1 Base Rent. Tenant shall pay to Landlord as base rent for the Premises, monthly payments ("Base Rent"), in advance, on the first day of each month of the term hereof in accordance with the following schedule:
Months Monthly Base Rent ------ ----------------- 1-12 $37,860.48 13-24 39,002.30 25-36 40,144.13 37-48 41,346.05 49-60 42,608.06 61-72 43,870.08 73-84 45,192.19 85-96 46,574.40 97-108 47,956.61 109-120 49,398.91
Tenant shall deliver to Landlord upon the execution hereof $37,860.48 as Base Rent for the first full month of the initial term. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing, without any offset or deduction except as otherwise expressly set forth herein. 4.2 Certain Expenses. Tenant shall pay to Landlord during the term hereof, in addition to the Base Rent and any additional rent and other amounts payable by Tenant under this Lease all of the following costs and expenses within ten (10) days after written demand from Landlord as additional rent: (a) Any Assessments applicable to the Premises imposed or assessed pursuant to the terms of that certain Amended and Restated Declaration of Covenants, Conditions and Restrictions for Cascades Business Park, Los Angeles, California, dated August 1, 2000 (the "CC&R's"). As used in this Section 4.2(a), the term "Assessments" shall have the meaning given that term in the CC&R's. For ease of -3- reference, the definition of "Assessments," "Common Area," and "Common Expenses" are reproduced in Exhibit "I" attached hereto. Any terms used in that Exhibit but not otherwise defined shall have the meanings given those terms in the CC&R's. (b) A property management fee equal to 1.325% of the gross rentals under this Lease. Landlord agrees that no increase in the amount payable with respect to the Premises under the CC&R's arising out of a modification or amendment of the CC&R's shall be payable by Tenant under this Lease, except to the extent such modification or amendment was approved by Tenant. Tenant agrees not to unreasonably withhold, condition or delay any approval to a proposed amendment to the CC&R's; provided that it shall not be deemed unreasonable for Tenant to withhold its approval of a proposed amendment to the CC&R's if such amendment shall result in an increase in the amount payable by Tenant under the CC&R's. Landlord and Tenant agree that the methodology for determining the allocation of costs under the CC&R's to the Premises shall be as outlined in Exhibit "H," attached hereto. 4.3 Certain Capital Items. As used herein, the term "Capital Item" means an item, the cost of which under generally accepted accounting principles, consistently applied, must be capitalized and not expensed. As used herein, the term "Amortized Capital Cost" means a repair, maintenance, replacement, alteration or improvement which (a) is a Capital Item, (b) either (i) costs $15,000.00 or more with respect to a single Capital Item or (ii) has a cost that when added to other Capital Items which are not Amortized Capital Costs would cause the amount of costs for Capital Items that are not Amortized Capital Costs and that are paid by Tenant to exceed $15,000.00 in any calendar year after the fifth anniversary of the Commencement Date, (c) is undertaken after the fifth anniversary of the Commencement Date, (d) is not related to or part of the Tenant Improvements or any alterations by Tenant, (e) is not required due to Tenant's particular use of the Premises, Tenant's breach of the Lease or any alterations or other improvements to the Premises by Tenant, (f) is the obligation of Tenant under this Lease, (g) has been approved by Landlord prior to it having been incurred, and (f) is not a Landlord Structural Item (as defined below). Landlord's approval under clause (g) of the previous sentence shall not be unreasonably withheld consistent with the standards for making capital improvements to comparable buildings of comparable age and design in Los Angeles County, California. As used herein, the term "Useful Life" means the useful life of the particular Capital Item determined under generally accepted industry standards. As to each Capital Item that is a Amortized Capital Cost, Tenant may give notice to Landlord of the proposed Capital Item, the amount of the Amortized Capital Cost, Tenant's opinion of the Useful Life of the Capital Item and that Tenant requires that Landlord reimburse Tenant for the entire initial cost of the -4- Amortized Capital Cost and agrees to repay Landlord on a monthly basis in a monthly amount (the "Monthly Recovery Amount") which equals the monthly amount that would fully amortize a loan having a principal balance equal to the Amortized Capital Cost and an interest rate equal to the Amortization Interest Rate (as defined below) in equal monthly payments over the number of months in the Useful Life of the applicable Capital Item. After receipt of Tenant's notice, Landlord may elect to perform the Capital Item constituting an Amortized Capital Cost in lieu of reimbursing the Tenant for such Tenant Capital Cost. In either event, commencing on the first day of the calendar month after the calendar month in which the applicable Capital Item is completed and on the first day of each month thereafter until the earlier of (A) the expiration of the term of the Lease, or (B) the expiration of the number of months in the item's Useful Life used to calculate the Monthly Recovery Amount, Tenant shall pay Landlord as additional rent an amount equal to the Monthly Recovery Amount as to each Amortized Capital Cost. As used herein, the term "Amortization Interest Rate" means an interest rate equal to the LIBOR Rate plus 425 basis points, where the "LIBOR Rate" means, for each month, the one (1) month LIBOR (London Interbank Offered Rate) Rate published in The Wall Street Journal (the "Reported Rate") on the first Publication Date (as defined below) of the applicable month. If The Wall Street Journal (i) publishes more than one (1) Reported Rate on any Publication Date, the average of such rates shall apply or (ii) publishes a retraction or correction of any Reported Rate, the corrected rate reported in such retraction or correction shall apply. If the Reported Rate is no longer published at least monthly, the LIBOR Rate shall be deemed to be such other London Interbank Offered Rate published in The Wall Street Journal as most reasonably approximates the Reported Rate. As used herein, the term "Publication Date" means any date on which the LIBOR Rate is published in The Wall Street Journal. If Tenant makes the election under this paragraph 4-3, and Landlord does not elect to perform the Capital Item constituting an Amortized Capital Cost, Landlord shall reimburse Tenant for the entire cost of such Capital Item within thirty (30) days after Tenant's notice to Landlord of completion of the applicable Capital Item. As a condition to Landlord's obligation to make the payments to Tenant described in this paragraph 4.3, Tenant shall provide Landlord with reasonable evidence that the costs of such Capital Item was paid and unconditional mechanic's lien releases in the form required under California law from the contractor and subcontractors who installed the Capital Item. 4.4 Effect of Exercise of Option to Extend on Payment of Certain Amounts Under Section 4.3. In the event that Tenant exercises an option to extend pursuant to paragraph 39, then with respect to Amortized Capital Costs under paragraph 4.3 (other than Amortized Capital Costs with respect to the replacement of the roof membrane), as to which it has not made a Monthly Recovery Amount payment for the number of months in the Useful Life of the applicable Capital Item, Tenant shall pay during the -5- applicable Option Period a Monthly Recovery Amount until it has made monthly payments for the number of months in the Useful Life of the applicable Capital Item, taking into account all prior Monthly Recovery Amount payments made by Tenant. 5. Security Deposit. Tenant shall deposit with Landlord upon execution hereof $40,000.00 as security for Tenant's faithful performance of Tenant's obligations hereunder (the "Security Deposit"). After the occurrence of an Event of Default, Landlord may use, apply or retain all or any portion of the Security Deposit for the payment of any rent or additional rent or for the payment of any other sum to which Landlord may become obligated by reason of Tenant's default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall within ten (10) days after written demand therefor deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount thereof and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant performs all of Tenant's obligations hereunder, the Security Deposit, or so much thereof as has not theretofore been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest hereunder) within thirty (30) days after the later of (a) the expiration of the term hereof, or (b) the date Tenant has vacated the Premises. No trust relationship is created herein between Landlord and Tenant with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied for the manufacturing and assembly of open and closed cassette wafer handling inspection and sorting tools serving the semi-conductor industry, related office and engineering operations and any other uses permitted by law and for no other purpose. Subject to Tenant's obligations to comply with applicable law as provided in Section 6.2(b), Tenant shall have access to and may operate within the Premises seven (7) days per week, twenty-four (24) hours per day, fifty-two (52) weeks per year. Tenant shall be solely responsible for (a) determining if and to the extent Tenant's use is permitted by applicable laws and regulations and (b) obtaining and maintaining all permits and licenses required by applicable law and regulations for such use. 6.2 Compliance with Law. (a) Landlord warrants to Tenant to Landlord's actual knowledge that the Premises, in the state existing on the date (the "Possession Date") that Landlord -6- tenders possession of the Premises to Tenant with the Landlord Improvements substantially completed, but without regard to the Tenant Improvements construed by Tenant pursuant to Exhibit "B," alterations by Tenant or to the use for which Tenant will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, law, rule, regulation, statute or ordinance ("Applicable Law") in effect and enforceable against the Premises on the Possession Date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Landlord, after written notice from Tenant, to promptly, at Landlord's sole cost and expense, rectify any such violation. In the event Tenant does not give to Landlord written notice of the violation of this warranty within one (1) year after the Possession Date, the correction of same shall be the obligation of Tenant at Tenant's sole cost, subject to Landlord's obligations under Paragraph 7.4(b) with respect to Landlord's Structural Items. (b) Except as provided in Paragraph 6.2(a), Tenant shall, at Tenant's expense, comply promptly with all Applicable Laws, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises or the occupation and use by Tenant of the Premises. Tenant shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance. 6.3 Condition of Premises. (a) Landlord shall deliver the Premises to Tenant clean and free of debris, occupants, rodents, insects, and other pests on the Lease on the Possession Date and Landlord warrants to Tenant to Landlord's actual knowledge that the plumbing, lighting, air conditioning, heating, and loading docks and doors in the Premises other than those portions constructed by Tenant shall be in good operating condition on the Possession Date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Landlord, after receipt of written notice from Tenant setting forth with specificity the nature of the violation, to promptly, at Landlord's sole cost, rectify such violation. Tenant's failure to give such written notice to Landlord within the Reporting Period (as defined below) shall cause the conclusive presumption that Landlord has complied with all of Landlord's obligations hereunder. As used in this Section 6.3(a), the term "Reporting Period" means the period ending 30 days after the Commencement Date with respect to any violation that is discoverable by a reasonable inspection of the Premises and the period ending 90 days after the Commencement Date with respect to any other violation. -7- (b) Except as otherwise provided in this Lease, Tenant hereby accepts the Premises in their condition existing as of the Possession Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions or easements of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Tenant acknowledges that neither Landlord nor Landlord's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Tenant's business. 7. Maintenance, Repairs and Alterations. 7.1 Tenant's Obligations. (a) Tenant shall keep in good order, condition and repair the Premises and every structural or nonstructural part (other than the Landlord Structural Items (as defined below)) thereof (whether or not such portion of the Premises requiring repair, or the means of repairing the same are reasonably or readily accessible to Tenant, and whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of such portion of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating and air conditioning (Tenant shall procure and maintain, at Tenant's expense, an air conditioning system maintenance contract) ventilating, electrical, lighting facilities and equipment within the Premises, fixtures, walls (interior and exterior), ceilings, roofs (including without limitation the composition roofing membrane), floors, windows, doors, plate glass and skylights located within the Premises, and all driveways, parking lots, fences and signs located on the Premises and sidewalks and parkways adjacent to the Premises. (b) Tenant shall maintain the Premises as provided in Paragraph 7.1(a) and in accordance with the requirements of the CC&R's; provided that a copy of such covenants or restrictions are provided to Tenant in writing. Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices and any damage or deterioration shall not be deemed "ordinary wear and tear" if the same could have been prevented by good maintenance practice. Tenant's obligations shall include restorations, replacements or renewals when necessary and when determined not to be due to ordinary wear and tear, in order to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Notwithstanding anything contained in the Lease to the contrary, Tenant shall make all repairs whatsoever on the Premises necessitated by the negligence, misconduct or fault of Tenant, or its agents, licensees or agents. -8- (c) If the term of this Lease, as the same may be extended or renewed, exceeds five (5) years, Landlord shall have the right to require Tenant to repaint the improvements every five (5) to seven (7) years, but not more often than once every five (5) years, as reasonably necessary. 7.2 Surrender. On the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Premises to Landlord in the same condition as when received, ordinary wear and tear and loss by casualty (to the extent that Landlord is obligated to repair the same under this Lease) and condemnation excepted, clean and free of debris; provided, however, that Tenant may, but shall not be obligated to, remove any of the improvements described in Exhibit "D" or any Alterations (as defined below) or Utility Installations (as defined below) as to which Landlord has waived the obligation to remove such items at the end of the term pursuant to Paragraph 7.5(a), below. Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenant's trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, upon the expiration of the term or the earlier termination of this Lease, Tenant shall leave the air lines, power panels, electrical distribution systems, mechanical systems, lighting fixtures, air conditioning, plumbing, heating (including space heaters) and fencing on the Premises in substantially the same condition and operating order as on the Commencement Date, and Tenant shall within thirty (30) days after receipt of a reasonably detailed invoice therefor pay to Landlord that portion of the cost to restore such items to good condition and operating order as may be reasonably allocable to Tenant's tenancy. 7.3 Landlord's Rights. Tenant shall provide to Landlord written reports every six (6) months setting forth in reasonable detail the regularly scheduled maintenance conducted by Tenant with respect to the Premises, which shall include reasonable evidence of the actual performance and completion of such scheduled maintenance. If Tenant fails to perform Tenant's obligations under this Paragraph 7, or under any other paragraph of this Lease, Landlord may at its option (but shall, not be required to) enter upon the Premises after ten (10) days' prior written notice to Tenant (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Tenant's behalf and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the Interest Rate (as defined below) shall become due and payable as additional rental to Landlord together with Tenant's next rental installment. -9- 7.4 Landlord's Obligations. (a) Except for the obligations of Landlord under Paragraphs 6.2(a) and 6.3(a) (relating to Landlord's warranty), Paragraph 9 (relating to destruction of the Premises), under Paragraph 14 (relating to condemnation of the Premises) Paragraph 7.4(b), it is intended by the parties hereto that Landlord have no obligation, in any manner whatsoever, to repair and maintain the Premises nor the Building located thereon nor the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Tenant under Paragraph 7.1 hereof. Tenant expressly waives the benefit of any statute now or hereinafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. (b) Landlord, at Landlord's sole cost and expense, and without reimbursement as an Operating Expense, shall maintain, repair and replace the structural elements of the foundations, exterior walls, roof structure and improvements below grade (the "Landlord Structural Items"), subject to normal wear and tear, provided however, if the need for such maintenance, repair or replacement arises because of the negligence, misconduct or fault of Tenant, or its agents, licensees or invitees, Tenant, subject to Paragraph 8.8 hereof, shall reimburse Landlord for the cost thereof within thirty (30) days after receipt of a reasonably detailed invoice therefor. (c) In the event Landlord holds a warranty covering any work of repair or maintenance Tenant is obligated to perform under this Lease, Landlord shall, at Landlord's cost, assign such warranty to Tenant to the extent necessary to allow Tenant to obtain the benefit of that warranty for that repair or maintenance. Effective upon any termination of this Lease, any warranty to the extent so assigned to Tenant is hereby reassigned by Tenant to Landlord. At Tenant's request, Landlord will enforce such warranties against the applicable parties making such warranties for the benefit of a Tenant. 7.5 Alterations and Additions. (a) Tenant shall not, without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, make any Alterations (as defined below) or Utility Installations in, on or about the Premises. Tenant may, however, make nonstructural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Landlord, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls and the cumulative costs thereof -10- does not exceed $25,000.00 in each instance, and provided that this exception is exercised in good faith by Tenant (i.e., Tenant does not artificially segregate an Alteration or Utility Installation which by its nature is a single unit or event into smaller increments for the purposes of avoiding the necessity of obtaining Landlord's consent). Notwithstanding the foregoing, Landlord may withhold its consent in its sole discretion with respect to any Alteration or Utility Installation to the exterior of the Premises or the exterior of the Building or which affects the structural elements of the Building. As used in Paragraph 7.5, the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing. As used in this Paragraph 7.5, the term "Alteration" shall mean any modification of the improvements on the Premises other than Utility Installations, whether by addition or deletion. Subject to the following three sentences, Landlord may require that Tenant remove any or all of said Alterations or Utility Installations at the expiration or earlier termination of the term, and restore the Premises to their prior condition. Prior to commencing any Alteration or Utility Installation, Tenant may request that Landlord waive Tenant's obligation to remove such Alteration or Utility Installation at the end of the term. Any such waiver must be in writing and shall only apply to the Alteration or Utility Installation described therein. Landlord hereby agrees that Tenant shall not be obligated to remove the initial improvements described in Exhibit "D" upon the expiration of the term. Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Landlord against any liability for mechanic's and materialmen's liens and to insure completion of the work; provided that Landlord agrees to waive the requirement for such bond so long as the initially-named tenant or any Tenant Affiliate (as defined below) is the Tenant under this Lease and in possession of a portion of the Premises in which the work is being performed. Should Tenant make any Alterations or Utility Installations as to which Landlord's consent is required without the prior approval of Landlord, Landlord may, at any time during the term of the Lease, require that Tenant remove any or all of the same. (b) Any Alterations or Utility Installations made by Tenant during the term of this Lease shall be done in a good and workmanlike manner and of good and sufficient materials, and Tenant shall, within thirty (30) days after completion of such Alteration or Utility Installation, provide Landlord with as-built plans and specifications for same. Notwithstanding anything contained in this Lease to the contrary, Paragraphs 7.5(d)(1)(ii) and (iii) shall apply to Alterations or Utility Installations (other than racking, shelving and temporary partitions) not requiring Landlord's consent under Paragraph 7.5(a). -11- (c) Any Alterations or Utility Installations in, or about the Premises that Tenant shall desire to make and which require the consent of the Landlord shall be presented to Landlord in written form, with proposed detailed plans. If Landlord shall give its consent, the consent shall be conditioned upon Tenant acquiring a permit to perform such Alteration or Utility Installation from appropriate governmental agencies, the furnishing of a copy thereof to Landlord prior to the commencement of the work and the compliance by Tenant of all conditions of said permit in a prompt and expeditious manner, and upon satisfaction of all of the requirements set forth in Paragraph 7.5(d), below. (d) For any Alterations or Utility Installations requiring Landlord's prior written consent: (1) Tenant shall: (i) Request Landlord's approval in writing at least thirty (30) days prior to proposed Alteration or Utility Installations. (ii) Employ a California licensed architect, contractor and structural engineer in connection with the proposed construction. (iii) Be fully responsible for the acts of Tenant's consultants, employees, contractors, subcontractors, invitees and agents, and cause them to fully comply with any applicable terms of this Lease and documents referred to by this Lease and all applicable laws, rules and regulations. (iv) Enter into written agreements with an architect and general contractor. Copies of executed agreements will be forwarded to Landlord within five (5) days of Landlord's request therefor. (v) Cause to be obtained an applicable building permit for any and all construction and modifications, and construct the additions and alterations and perform the construction work in accordance with all applicable laws, including without limitation the Americans With Disabilities Act. (2) Tenant's architect shall: (i) Be licensed by the State of California. -12- (ii) Incorporate the building standard details (if any) supplied by Landlord onto the drawings. (iii) Submit final plans for Landlord's written approval prior to construction. (iv) Be available for final inspection with Landlord at job completion. (v) Sign off on the as-built drawings as the Architect's certification that the improvements have, in fact, been built as per the Architect's design. (3) Tenant's general contractor and/or subcontractors shall: (i) Be licensed by the State of California. (ii) Have substantial experience providing similar quality and quantity of improvements. (iii) Have a bonding capacity equal to or exceeding the valuation of the job. Landlord may, at its sole option, require the job to be bonded; provided that Landlord agrees to waive the requirement for such bond so long as the initially-named tenant is the Tenant under this Lease and in possession of a portion of the Premises in which the work is being performed. (iv) Maintain in full force and effect, throughout the duration of its performance under the contract with the Tenant, a Worker's Compensation insurance policy and a Commercial General Liability insurance policy issued by an insurer satisfactory to Landlord with liability coverage of not less than $1,000,000.00 for personal injury and $500,000.00 to cover property damage. The Commercial General Liability insurance policy shall include assumption of contractual liability. Certificates of insurance containing a thirty (30) day cancellation clause shall be furnished to Landlord prior to commencement of performance under the construction contract naming Landlord and its managing agent as additional insureds. (v) Provide Landlord with as-built drawings of all improvements. -13- (e) All approvals by Landlord, as provided for in this Paragraph 7.5, shall not be unreasonably withheld, conditioned or delayed. All requests to be submitted to Landlord shall be submitted through Landlord's managing agent. If Landlord shall give its consent, the consent shall be deemed conditioned upon the compliance by Tenant in a prompt and expeditious manner of all conditions of all permits obtained pursuant to Paragraph 7.5(d), above. (f) Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Tenant shall give Landlord not less than thirty (30) days' notice prior to the commencement of any work in the Premises costing in excess of $5,000, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any such lien, claim or demand, then Tenant shall, at its sole expense defend itself and Landlord against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Landlord or the Premises, upon the condition that if Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to such contested lien claim or demand indemnifying Landlord against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Landlord may require Tenant to pay Landlord's attorneys fees and costs in participating in such action if Landlord shall decide it is in its best interest to do so. (g) Unless otherwise agreed in writing pursuant to Paragraph 7.5(a) or otherwise, Landlord may require that any or all Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Landlord, and that the Premises be restored to their prior condition. Should Tenant make any alterations, improvements, additions or Utility Installations without the prior approval of Landlord, Landlord may require that Tenant remove any or all of the same. (h) Unless Landlord requires their removal, as set forth in Paragraph 7.5(g), all Alterations and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Tenant), which may be made on the Premises, shall become the property of Landlord and remain upon and be surrendered with the Premises at the expiration or earlier termination of the term. Notwithstanding the provisions of this Paragraph 7.5(h), Tenant's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Tenant and may be removed by Tenant subject to the provisions of Paragraph 7.2. -14- 8. Insurance; Indemnity 8.1 Tenant hereby agrees to indemnify, defend and hold harmless Landlord, its successors, assigns, subsidiaries, directors, officers, agents and employees from and against any and all damage, loss, liability or expense including, but not limited to, attorney's fees and legal costs suffered by same directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death resulting anytime therefrom, and property damage sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the use or occupancy of the Premises or other areas in the Industrial Center by Tenant, the acts or omission of Tenant, its agents, employees or any other contractors or invitees brought onto said Premises by Tenant, or any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, except to the extent finally determined by a court of competent jurisdiction to have been caused by the gross negligence or wilful misconduct of Landlord, its employees, and agents. If any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, shall defend same at Tenant's expense by counsel satisfactory to Landlord. Such loss or damage shall include, but not be limited to, any injury or damage to Landlord's personnel (including death resulting anytime therefrom) on the Premises. Tenant agrees that the obligations assumed herein shall survive the termination of this Lease. 8.2 Tenant hereby agrees to maintain in full force and effect at all times during the term of this Lease, at Tenant's own expense, for the protection of Tenant, Landlord and Landlord's property manager, as their interest may appear, policies of insurance issued by a responsible carrier or carriers which afford the following coverages: (a) Workers' Compensation with statutory limits. (b) Employers' Liability insurance with the following minimum limits: Bodily injury by disease per person $1,000,000 Bodily injury by accident policy limit $1,000,000 Bodily injury by disease policy limit $1,000,000
(c) Property insurance on a special causes of loss insurance form covering any and all personal property of Tenant including but not limited to improvements, betterments, furniture, fixtures, Utility Installations, and equipment in -15- an amount not less than their full replacement cost, with a deductible not to exceed $10,000. This policy should contain a waiver of subrogation. (d) Commercial General Liability Insurance including Broad Form Property Damage and Contractual Liability with the following minimum limits: General Aggregate $2,000,000 Products/Completed Operations Aggregate $2,000,000 Each Occurrence $1,000,000 Personal & Advertising Injury $1,000,000 Medical Payments $5,000 per person
(e) Umbrella/Excess Liability on a following form basis with the following minimum limits: General Aggregate $10,000,000 Each Occurrence $10,000,000
The limits of said insurance in this Paragraph 8(b)(i) shall not however, limit the liability of Tenant hereunder. 8.3 Landlord shall, at all times during the term of this Lease, maintain the following insurance: (a) A policy or policies of all-risk property insurance, issued by and binding upon some solvent insurance company, insuring for the full replacement cost of the building on the Premises. Landlord shall not be obligated to insure, and shall not assume any liability or risk of loss for, any of Tenant's furniture, equipment, machinery, goods, supplies, utility installations, improvements, or alterations upon the Premises. This policy shall contain an agreed amount endorsement and be written with no coinsurance. Landlord may, but shall not be obligated to, obtain earthquake and flood insurance. (b) Rent insurance on an all-risk basis in an amount equal to all that is called for under Paragraph 4 of this Lease (Base Rent and any additional rents payable under this Lease including tax and insurance costs) for a period of at least twelve (12) months commencing with the date of loss. (c) Boiler and Machinery insurance in an amount satisfactory to Landlord on a comprehensive coverage form. -16- (d) Commercial general liability insurance in addition to, and not in lieu of, the commercial general liability insurance required to be maintained by Tenant in an amount not less than $1 million per occurrence and $3 million general aggregate. Tenant shall not be named as an additional insured therein. Landlord may elect to have reasonable deductibles in connection with the insurance specified in Paragraph 8.3, and Tenant shall be liable for such deductible amount in the event of a claim thereunder. 8.4 The Tenant shall deliver to Landlord prior to the time such insurance is first required to be carried by Tenant, and thereafter at least thirty (30) days prior to expiration of such policy, certificates of insurance evidencing the above coverage with limits not less than those specified above. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least A-VIII as set forth in the most current issue of "A.M. Best's Insurance Guide". Such Certificates with the exception of Worker's Compensation, shall name Landlord, its subsidiaries, directors, agents and employees, and its property manager as additional insureds and shall expressly provide that the interest of same herein shall not be affected by a breach by Tenant of any insurance policy provision for which such Certificates evidence coverage. Further, all Certificates shall expressly provide that no less than thirty (30) days prior written notice shall be given to Landlord in the event of material alteration to or cancellation of the coverage evidenced by such Certificates. 8.5 Upon demand not more often than once in any calendar year, Tenant shall provide Landlord, at Tenant's expense, with such increased amount of existing insurance and such other insurance coverage in such limits as Landlord may require in its reasonable judgment to afford Landlord adequate protection consistent with the practices of institutional owners of comparable properties. 8.6 If, on account of the failure of Tenant to comply with the foregoing provisions, Landlord is adjudged a co-insurer by the insurance carrier, then any loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of bill thereof and evidence of such loss. 8.7 Landlord makes no representation that the limits of liability specified to be carried by Tenant under the term of this Lease are adequate to protect Tenant against Tenant's undertaking under this Paragraph 8 and in the event Tenant believes that any such insurance coverage called for under this Lease is insufficient, Tenant shall provide, at its own expense, such additional insurance as Tenant deems adequate. -17- 8.8 Anything in this Lease to the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claims, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Premises, improvements to the building of which the Premises are a part, personal property (building contents) within the building on the Premises, any furniture, equipment, machinery, goods or supplies not covered by this Lease which Tenant may bring or obtain upon the Premises or any additional improvements which Tenant may construct on the Premises, by reason of fire, the elements or any other cause which could be insured against under the terms of all risk property insurance policies, regardless of cause or origin, including negligence of Landlord or Tenant and their agents, officers and employees. Because this Paragraph will preclude the assignment of any claim mentioned in it by way of subrogation (or otherwise) to an insurance company (or any other person) each party to this Lease agrees immediately to give to each insurance company, written notice of the terms of the mutual waivers contained in this Paragraph, and to have the insurance policies properly endorses if necessary to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this Paragraph. 8.9 Tenant shall pay to Landlord during the term hereof, additional rent in the amount of any premiums for the insurance obtained under Paragraphs 8.3(a), 8.3(b), 8.3(c) and 8.3(d) and any other insurance which Landlord or Landlord's lender deems necessary for the Premises and the amount of any deductibles paid by Landlord under such policies. If Landlord elects to self-insure or includes the Premises under blanket insurance policies covering multiple properties, then Tenant's reimbursement obligation hereunder shall include the portion of the reasonable cost of such self-insurance or blanket insurance that is allocated to the Premises. Tenant shall pay any such premiums to Landlord within thirty (30) days after receipt by Tenant of a copy of the premiums statement or other evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Landlord shall also deliver to Tenant a reasonably detailed statement of the amount of such premiums attributable to the Premises and showing in reasonable detail the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Tenant's liability for premiums shall be prorated on an annual basis. 8.10 All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. -18- 8.11 Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Premises, nor shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant. Notwithstanding Landlord's negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenant's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the then replacement cost of the Premises. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is less than 50% of the then replacement cost of such building as a whole. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the then replacement cost of the Premises. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the then replacement cost of such building as a whole. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in Paragraph 8. 9.2 Partial Damage -- Insured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Landlord shall, at Landlord's expense, repair such damage, but not Tenant's fixtures, equipment or tenant -19- improvements unless the same have become a part of the Premises pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the above, if the insurance proceeds received by Landlord are not sufficient to effect such repair, Landlord shall give notice to Tenant of the amount required in addition to the insurance proceeds to effect such repair. Tenant shall contribute the required amount to Landlord within ten days after Tenant has received notice from Landlord of the shortage in the insurance. When Tenant shall contribute such amount to Landlord, Landlord shall make such repairs as soon as reasonably possible and this Lease shall continue in full force and effect. Tenant shall in no event have any right to reimbursement for any such amounts so contributed. 9.3 Partial Damage -- Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Tenant or its agents, contractors or invitees (in which event Tenant shall make the repairs at Tenant's expense), Landlord may at Landlord's option either (i) repair such damage as soon as reasonably possible at Landlord's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Landlord elects to give such notice of Landlord's intention to cancel and terminate this Lease, Tenant shall have the right within ten (10) days after the receipt of such notice to give written notice to Landlord of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this Lease shall continue in full force and effect, and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within such 10-day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, then Landlord may at Landlord's option either (i) repair such damage or destruction, but not Tenant's fixtures, equipment, tenant improvements or Utility Installations, as soon as reasonably possible at Landlord's expense, and this Lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of occurrence of such damage of Landlord's intention to cancel and terminate this Lease, in which case this Lease shall be canceled and terminated as of the date of the occurrence of such damage. -20- 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of the Premises Partial Damage, Landlord may at Landlord's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding Paragraph 9.5(a) in the event that Tenant has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Tenant shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Tenant duly exercises such option during said 20 day period, Landlord shall, at Landlord's expense, repair such damage, but not Tenant's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect, provided Tenant first deposits with Landlord any shortfall in necessary funds. If Tenant fails to exercise such option during said 20 day period, then Landlord may at Landlord's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Tenant of Landlord's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Tenant's Remedies. (a) In the event of damage described in Paragraphs 9.2, 9.3 or 9.5 and Landlord or Tenant repairs or restores the Premises pursuant to the provisions of Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Tenant's use of the Premises is impaired to the extent Landlord receives proceeds from rent abatement insurance. Except for abatement of rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Landlord shall be obligated to repair or restore the Premises under the provisions of Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Tenant may at Tenant's option cancel and terminate this Lease by giving Landlord written notice of Tenant's election to do so at any time prior to the commencement of such repair or restoration. In such -21- event this Lease shall terminate as of the date of such notice. In the event that Landlord shall be obligated to repair or restore the Premises pursuant to Paragraph 9 of this Lease and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue, the right of Tenant to terminate this Lease pursuant to this Paragraph 9.6 (b) shall be the sole right and remedy of Tenant against Landlord, and Landlord shall have no other liability to Tenant, for damages, specific performance or otherwise, in connection with any such failure. 9.7 Termination -- Advance Payments. Upon termination of this Lease pursuant to Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of Tenant's security deposit as has not theretofore been applied by Landlord. 9.8 Waiver. Landlord and Tenant waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 10.1 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Premises or in the real property of which the Premises are a part, as against Landlord's right to rent or other income therefrom, and as against Landlord's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (a) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (b) the nature of which was hereinbefore included within the definition of "real property tax," or (c) which is imposed for a service or right not charged prior to June 1,1978, or, if previously charged, has been increased since June 1,1978, or (d) which is imposed as a result of a transfer, either partial or total, of Landlord's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (e) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. The term "real property tax" shall also include fees payable to tax consultants and attorneys for consultation and contesting real property taxes. Notwithstanding the foregoing, the -22- term "real property tax" shall exclude inheritance taxes, personal income taxes, estate taxes, gift, excise, franchise, capital levy, state payroll, stamp or profit taxes, however designated. If any real property tax to be paid by Tenant shall cover any period of time prior to the Commencement Date, such real property taxes shall be equitably prorated to cover only the period of time within the applicable tax fiscal year this Lease is in effect. 10.2 Payment of Taxes. (a) Tenant shall pay the real property tax applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Tenant shall promptly furnish Landlord with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Tenant's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Landlord shall reimburse Tenant for any overpayment. If Tenant shall fail to pay any required real property tax, Landlord shall have the right to pay the same and Tenant shall reimburse Landlord therefor upon demand. (b) Advance Payment. In the event Tenant incurs a late charge on a Rent payment more than two times during the term of this Lease, Landlord may, at Landlord's option, estimate the current real property taxes, and require that such taxes be paid in advance to Landlord by Tenant, either (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of Base Rent. If Landlord elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which such installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needs to pay the applicable taxes. If the amount collected by Landlord is insufficient to pay such real property taxes when due, Tenant shall pay Landlord, upon demand such additional sums as are necessary to pay such obligations. All monies paid to Landlord under this paragraph may be intermingled with other monies of Landlord and shall not bear interest. In the event of an Event of Default by Tenant in the performance of its obligations under this Lease, any balance of funds paid to Landlord under the provisions of this paragraph may, at the option of Landlord, be treated as an additional Security Deposit. -23- 10.3 Personal Property Taxes. (a) Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. When possible, Tenant shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. (b) If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay such taxes as part of real property tax. 10.4 Additional Provisions Regarding Real Property Taxes. Landlord shall have the sole right to contest or appeal any real property taxes or assessments applicable to all or any portion of the Premises and to seek a reduction in the assessed valuation of all or any portion of the Premises (collectively, "Tax Contests"). Any refund of real property taxes resulting from any such Tax Contest shall be applied first to reimburse Landlord for its costs and expenses in connection with the Tax Contest (including, without limitation attorneys' fees and the costs of consultants) and then, out of and to the extent of the balance of such refund, Landlord shall reimburse to Tenant the portion of such reduction attributable to the Premises and the term of this Lease, as and to the extent previously paid by Tenant as part of Tenant's Share of Operating Expenses. Fees payable to tax consultants and attorneys for consultation and contesting real property taxes shall be an Operating Expense. In the event that Landlord has not undertaken a Tax Contest with respect to the property taxes or assessments for a tax fiscal year, Tenant may request that Landlord undertake such a Tax Contest. In the event that Landlord does not commence such Tax Contest within 90 days after receipt of Tenant's request or does not otherwise agree to proceed with that Tax Protest, then Tenant may undertake a Tax Contest; provided that no such Tax Contest by Tenant shall be made if the contested tax or assessment may become a lien on the Building unless the contested amount is paid prior to the Tax Contest by Tenant. Tenant shall indemnify and hold Landlord harmless with respect to any increases in real property taxes or assessments arising out of Tenant's conduct of a Tax Contest above the level those real estate taxes or assessments would have been in the absence of such a Tax Contest. 11. Utilities. Tenant shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. Landlord represents that the following utilities are available stubbed up to the boundary of the Premises: natural gas, electrical, water, and sewer. -24- 12. Assignment and Subletting. 12.1 Landlord's Consent Required. Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises, without Landlord's prior written consent, which Landlord shall not unreasonably withhold, condition or delay. Landlord shall respond to Tenant's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a noncurable breach of this Lease, without the need for notice to Tenant under Paragraph 13.1. 12.2 Procedure. If at any time or from time to time during the term of this Lease, Tenant desires to assign or sublet all or any part of Tenant's interest in this Lease or in the Premises to an entity other than a Tenant Affiliate (as defined below), Tenant shall give prior written notice to Landlord setting forth the terms of the proposed assignment or subletting and the space so proposed to be assigned or sublet. Such assignment or sublease shall be subject to, without limitation, all the conditions in Paragraph 12 and the following conditions: (a) The assignment or sublease shall be substantially on the terms set forth in the notice given to Landlord. Any subsequent changes or modifications will require Landlord's prior written consent. (b) Tenant acknowledges that Landlord's agreement to lease these Premises to Tenant at the rent and terms stated herein is made in material reliance upon Landlord's evaluation of this particular Tenant's background, experience and ability, as well as the nature of the use of the Premises by this Tenant as set forth in Paragraph 6. In the event that Tenant shall request Landlord's written consent to assign or sublease the Premises as required in Paragraphs 12.1 and 12.2 hereof, then each such request for consent shall be accompanied by the following: (i) Financial statements of the proposed assignee or sublessee, or if financial statements are not available, other information concerning the financial condition of the proposed assignee or sublessee that reasonably discloses and represents that financial condition; (ii) A statement of the specific uses for which the Premises will be utilized by the proposed assignee or sublessee; and -25- (iii) Preliminary plans prepared by an architect or civil engineer for all alterations to the Premises that are contemplated to be made by Tenant, the proposed assignee or sublessee. (c) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises assigned or subleased until an executed counterpart of such assignment or sublease has been delivered to Landlord. (d) No sublessee or assignee shall have a right further to sublet or assign without Landlord's prior written consent as provided in this Paragraph 12. (e) In the case of an assignment, 50% of any sums or other economic consideration received by Tenant as a result of such assignment shall be paid to Landlord after first deducting the unamortized cost of leasehold improvements paid for by Tenant in connection with such assignment and the cost of any real estate commissions incurred by Tenant in connection with such assignment. (f) In the case of a subletting, 50% of any sums or economic consideration received by Tenant as a result of such subletting shall be paid to Landlord after first deducting (i) the rent due hereunder prorated to reflect only rent allocable to the sublet portion of the Premises, (ii) the cost of tenant improvements made to the sublet portion of the Premises at Tenant's cost in connection with such sublease, which shall be amortized over the term of the applicable sublease and (iii) the cost of any real estate commissions incurred by Tenant in connection with such subletting, amortized over the term of the sublease. 12.3 Tenants Other Than Individuals. [The provisions of this paragraph 12.3 shall not apply so long as the original named Tenant is the Tenant under this Lease.] (a) If Tenant is a partnership, a transfer of any interest of a general partner, a withdrawal of any general partner from the partnership, or the dissolution of the partnership, shall be deemed to be an assignment of this Lease. (b) If Tenant is a corporation, unless Tenant is a public corporation whose stock is regularly traded on a national stock exchange, or is regularly traded in the over-the-counter market and quoted on NASDAQ, any sale or other transfer of a percentage of capital stock of Tenant which results in a change of controlling persons, or the sale or other transfer of substantially all of the assets of Tenant, shall be deemed to be an assignment of this Lease. (c) Notwithstanding anything to the contrary contained in this Lease, the initial listing for sale of Tenant's stock on a public exchange or the sale of any -26- number of shares of Tenant's stock on a public exchange, shall not be deemed to be an assignment or other transfer requiring Landlord's consent under this Lease 12.4 Tenant Affiliate. Notwithstanding the provisions of Paragraph 12.1 hereof, Tenant may assign or sublet the Premises, or any portion thereof, without Landlord's consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant as a going concern of the business that is being conducted on the Premises (any of the foregoing, a "Tenant Affiliate"), provided that (a) the transferee has a net worth, after the assignment or sublet, which is equal to or greater than the net worth of Tenant at the date of this Lease; (b) the transferee assumes, in full, the obligations of Tenant under this Lease; and (c) a copy of the document effecting the sublet and evidencing the transferee's assumption of Tenant's obligations hereunder is promptly delivered to Landlord. Any such assignment shall not, in any way, affect or limit the liability of Tenant under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Tenant, the consent of whom shall not be necessary. 12.5 No Release of Tenant. Regardless of Landlord's consent, any subletting or assignment shall not (a) be effective without the express written assumption by such assignee or sublessee of the obligations of Tenant under this Lease, (b) release Tenant of any of Tenant's obligations hereunder or (c) alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof or any default by Tenant. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Tenant or any successor of Tenant, in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this Lease; provided that Tenant shall not be liable for any increase in the obligations under this Lease resulting from such an amendment or modification of this Lease to which Tenant has not consented. 12.6 Terms and Conditions Applicable to Subletting. Regardless of Landlord's consent, the following terms and conditions shall apply to any subletting by tenant of all or any part of the Premises and shall be included in subleases: -27- (a) Tenant hereby assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease heretofore or hereafter made by Tenant, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until a default shall occur in the performance of Tenant's obligations under this Lease, Tenant may, subject to paragraphs 12.2 (e) and (f) receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such sublease to Landlord nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Tenant to perform and comply with any of Tenant's obligations to such sublessee under such sublease. Tenant hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Landlord stating that a default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord the rents due and to become due under the sublease, Tenant agrees that such sublessee shall have the right to rely upon any such statement and request from Landlord, and that such sublessee shall pay such rents to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary. Tenant shall have no right or claim against such sublessee or Landlord for any such rents so paid by said sublessee to Landlord. (b) No sublease entered into by Tenant to any entity other than a Tenant Affiliate shall be effective unless and until it has been approved in writing by Landlord. In entering into any sublease, Tenant shall use only such form of sublease as is satisfactory to Landlord, and once approved by Landlord, such sublease shall not be changed or modified without Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Landlord, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Tenant other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Landlord has expressly consented in writing. (c) The consent by Landlord to any subletting shall not release Tenant from its obligations or alter the primary liability of Tenant to pay the rent and perform and comply with all of the obligations of Tenant to be performed under this Lease. (d) The consent by Landlord to any subletting shall not constitute a consent to any subsequent subletting by Tenant or to any assignment or subletting by the sublessee. However, Landlord may consent to subsequent sublettings and -28- assignments of the sublease or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability. (e) After the occurrence of an Event of Default, Landlord may proceed directly against Tenant, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord or Tenant. (f) In the event Tenant shall default in the performance of its obligations under this Lease, Landlord, at its option and without any obligation to do so, may require any sublessee to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such sublessee to Tenant or for any other prior defaults of Tenant under such sublease. (g) No sublessee shall further assign or sublet all or any part of the Premises without Landlord's prior written consent. (h) Landlord's written consent to any subletting of the Premises by Tenant shall not constitute an acknowledgment that no default then exists under this Lease of the obligations to be performed by Tenant nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Landlord at the time. 12.7 Attorney's Fees. In the event Tenant shall assign or sublet the Premises or request the consent of Landlord to any assignment or subletting or if Tenant shall request the consent of Landlord for any act Tenant proposes to do, then Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection therewith, such attorneys' fees not to exceed $350.00 for each such request. Notwithstanding the foregoing, the parties agree that a payment of $750.00 is a reasonable fee for Landlord's review of Tenant's request to assign or sublease. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease (each, an "Event of Default") by Tenant: -29- (a) [INTENTIONALLY OMITTED] (b) The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) days after written notice thereof from Landlord to Tenant. In the event that Landlord serves Tenant with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes, such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than 30 days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, said thirty (30) day nonce shall constitute the sole and exclusive notice required to be given to Tenant under applicable unlawful detainer statutes. (d) (i) The making by Tenant of any general arrangement or assignment for the benefit of creditors; (ii) Tenant becomes a "debtor" as defined in 11 U.S. C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within 60 days); (iii) 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 30 days; or (iv) 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 30 days. Provided, however, in the event that any provision of this Paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Landlord that any financial statement given to Landlord by Tenant, any assignee of Tenant, any sublessee of Tenant, any successor in interest of Tenant or any guarantor of Tenant's obligations hereunder, and any of them, was materially false. 13.2 Remedies. If Tenant fails to perform any affirmative duty or obligation of Tenant under this Lease, within thirty (30) days after written notice to Tenant (or in case of an emergency, without notice), Landlord may at its option (but without obligation to do so), perform such duty or obligation on Tenant's behalf including but -30- not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Landlord shall be due and payable by Tenant to Landlord upon invoice therefor. Upon the occurrence of an Event of Default, with or without further notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such breach, Landlord may: (a) Terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event Landlord shall be entitled to recover from Tenant: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Landlord applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provisions (i) and (ii) of the prior sentence shall be calculated based on an interest rate equal to the highest rate permitted by applicable law. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be 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. Efforts by Landlord to mitigate damages caused by Tenant's breach of this Lease shall not waive Landlord's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Landlord shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Landlord may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Paragraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Tenant under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under Paragraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such -31- statutory notice, and the failure of Tenant to cure the default within the greater of the two such grace periods shall constitute both an unlawful detainer and breach of this Lease entitling Landlord to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Tenant's right to possession in effect (in California under California Civil Code Section 1951.4) after Tenant's breach and abandonment and recover the rent as it becomes due, provided Tenant has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Tenant and Landlord agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Landlord's interest under the Lease, shall not constitute a termination of the Tenant's right to possession. (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. Unpaid installments of rent and other unpaid monetary obligations of Tenant under the terms of this Lease shall bear interest from the date due at the Interest Rate. (d) The expiration or termination of this Lease and/or the termination of Tenant's right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing prior to such expiration or termination or by reason of Tenant's occupancy of the Premises. 13.3 Default by Landlord. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust encumbering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance then Landlord shall not be in default if Landlord commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. Any damages or judgments arising out of Landlord's default of its obligations under this Lease shall be satisfied only out of Landlord's interest and estate in the Premises, and Landlord shall have no personal liability beyond such interest and estate with respect to such damages or judgments. 13.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult -32- to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed encumbering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to 5% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, not prevent Landlord from exercising any of the other rights and remedies granted hereunder. Notwithstanding the foregoing provisions of Paragraph 13.4, the 5% late charge described in this Paragraph 13.4 shall not be imposed with respect to the first or second late payment in any calendar year unless the applicable payment due from Tenant is not received by Landlord or Landlord's designee within ten (10) days following written notice from Landlord that such payment was not received when due. Following the second such written notice from Landlord in any calendar year (and regardless of whether such payment is then received within such 10-day period), a late charge will be imposed without notice for any subsequent payment due from Tenant during such calendar year which is not received within ten (10) days of its due date. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Tenant may, at Tenant's option, to be exercised in writing only within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that -33- Tenant shall be entitled to any award for loss of or damage to Tenant's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Landlord shall to the extent of net severance damages received by Landlord in connection with such condemnation, over and above the legal and other expenses incurred by Landlord in the condemnation matter, repair any damage to the Premises caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority. Tenant shall pay any amount in excess of such net severance damages required to complete such repair. 15. Broker's Commissions. Tenant and Landlord each represent and warrant to the other that neither has had any dealings with any person, firm, broker or finder (other than those persons, if any, whose names are set forth in this Paragraph 15) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and no other broker or other person, firm or entity is entitled to any commission or finder's fee in connection with said transaction and Tenant and Landlord do each hereby indemnify and hold the other harmless from and against any costs, expenses, attorneys' fees or liability for compensation, commission or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying party. Named brokers: Landlord's Broker: CB Richard Ellis, Inc. Tenant's Broker: CB Richard Ellis, Inc. Tenant's Consultant: CRESA Partners
The commission payable to Landlord's Broker with respect to this Lease shall be pursuant to the terms of the separate commission agreement in effect between Landlord and Landlord's Broker. Landlord's Broker shall pay a portion of its commission to Tenant's Broker and Tenant's Consultant, pursuant to a separate agreement between Landlord's Broker and Tenant's Broker and Tenant's Consultant. Nothing in this Lease shall impose any obligation on Landlord to pay a commission or fee (a) to any party other than Landlord's Broker or (b) to any party with respect to (i) the exercise by Tenant of any option or right of first refusal pursuant to this Lease, or (ii) any extension or renewal of this Lease. 16. Estoppel Certificate. (a) Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and -34- effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Landlord's option, Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Landlord as a default by Tenant under this Lease. Anything to the contrary notwithstanding in this Paragraph 16(b), Tenant's failure to deliver an estoppel certificate will not be deemed a default or breach by Tenant of the Lease unless Tenant's failure continues uncured for five days after an additional written notice to Tenant of such default. (c) If Landlord desires to finance, refinance, or sell the Premises, or any part thereof, Tenant hereby agrees to deliver to any lender or purchaser designated by Landlord such financial statements of Tenant as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Tenant. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. Notwithstanding the foregoing, so long as Tenant is a publicly traded company and obligated to report its financial condition publicly in accordance with the rules of the Securities and Exchange Commission, Tenant shall not be obligated to provide any additional financial statements in addition to those reports available to the general public by reason of such reporting requirements. (d) Landlord shall at any time upon no less than 10 days' prior written notice from Tenant referring to this Paragraph of the Lease execute, acknowledge and deliver to Tenant a statement in writing (a) certifying that the Lease is unmodified and to Landlord's actual knowledge in full force and effect (or, if modified, stating the nature of such modification and certifying that to Landlord's actual knowledge of this Lease, as so modified, it is in full force and effect) and the date to which rent and other charges are paid in advance, if any, and (b) acknowledging that it has not given Tenant any written notices of default, or providing copies of such notices if any have been given. 17. Landlord's Liability. The term "Landlord" as used herein shall mean only the owner or owners at the time in question of the fee title or a Tenant's interest in a -35- ground lease of the Premises, and in the event of any transfer of such title or interest, Landlord herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects. Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest at the Interest Rate. Payment of such interest shall not excuse or cure any default by Tenant under this Lease, provided, however, that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant. As used herein, the term "Interest Rate" means the lesser of (a) a floating annual interest rate equal to four percent (4%) over the prime rate (for corporate loans at large United States money center commercial banks) published in the Wall Street Journal on the first business day of each month, or (b) the maximum rate permitted by applicable law. In the event that the Wall Street Journal fails to publish such a prime rate, the "prime rate" shall be the prime rate or reference rate quoted by a national bank having offices in California selected by Landlord in its sole discretion. 20. Time of Essence. Time is of the essence with respect to the obligations to be performed under this Lease. 21. Additional Rent. Any monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Tenant hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Landlord or any employees or agents of any of said persons has made any oral or written warranties or representations to Tenant relative to the condition or use by Tenant of said Premises -36- and Tenant acknowledges that Tenant assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice given pursuant to this Lease shall be in writing, shall be personally delivered, delivered by Federal Express or comparable overnight courier, providing written evidence of delivery, or delivered by U.S. registered or certified mail, return receipt requested, postage prepaid and sent to Landlord and Tenant at the following addresses: LANDLORD Silver Oaks LLC 16325 Silver Oak Drive Sylmar, California 91342 Attn: Tom Clark With a copy by the same method to: The Prudential Insurance Company of America 4 Embarcadero Center, Suite 2700 San Francisco, California 94111-4180 Attn: PRISA Management With a copy by the same method to: Experience Property Solutions 3000 East Birch Street, Suite 109 Brea, California 92821 Attn: Mark Harryman TENANT: Brooks Automation, Inc., 15 Elizabeth Drive Chelmsford, Massachusetts 01824 Attn: Jeffrey Myrdek -37- or such other address as either party may from time to time designate as its notice address by notifying the other party thereof. Notice so sent shall be deemed given (a) when personally delivered, or (b) on the first business day following deposit with Federal Express or a comparable overnight courier service providing written evidence of delivery, or (c) five business days following deposit in the United States mail, if notice is sent by registered or certified mail, return receipt requested, postage prepaid. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by notice to Tenant. 24. Waivers. No waiver by either party of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by the other party of the same or any other provision. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, 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. 25. Recording. This Lease shall not be recorded, but the parties shall execute, acknowledge before a notary public, and deliver, the memorandum of lease attached to this Lease as Exhibit "E". The memorandum shall be recorded with the Los Angeles County Recorder at Tenant's sole cost and expense. Concurrently with the delivery of the memorandum of lease, Tenant shall execute and deliver to Landlord a quitclaim deed to the Premises, in recordable form, designating Landlord as transferee. Landlord agrees not to record that quitclaim deed prior to the expiration or earlier termination of this Lease. In addition, upon Landlord's request, Tenant shall immediately execute and deliver to Landlord on expiration or termination of this Lease a quitclaim deed to the Premises, in recordable form, designating Landlord or its successor as transferee. 26. Holding Over. If Tenant, with Landlord's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Tenant, except that the monthly rent shall be 150% of the rent payable in the last month of the Lease term, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminate and be of no further effect during said month to month tenancy. -38- 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. Subordination, Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Tenant agrees that the holders of any such Security Devices (in this Lease together referred to as "Landlord's Lender") shall have no liability or obligation to perform any of the obligations of Landlord under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Tenant, whereupon this Lease and such Options shall be deemed prior to such Security Device notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Tenant agrees to attorn to a Lender or another party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not (i) be liable for any act or omission of any prior Landlord or with respect to events occurring prior to acquisition of ownership (provided that this clause (i) shall not relieve the new owner from its ongoing maintenance obligations under this Lease); (ii) be subject to any offsets or defenses which Tenant might have against any prior Landlord; or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered into by Landlord after the execution of this Lease, Tenant's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Tenant's possession of the Premises, and this Lease, including any -39- options to extend the term hereof, will not be disturbed so long as Tenant is not in breach hereof and attorns to the record owner of the Premises. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Landlord or a Lender in connection with a sale, financing or refinancing of the Premises, Tenant and Landlord shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. Tenant's failure to execute such documents within 10 business days after written demand shall constitute a material default by Tenant hereunder without further notice to Tenant. Anything to the contrary notwithstanding in this Paragraph 30.4, Tenant's failure to deliver such documents will not be deemed Event of Default by Tenant of the Lease unless Tenant's failure continues uncured for five (5) days after an additional written notice to Tenant of such default. 30.5 Initial Subordination and Non-Disturbance Agreement. Landlord shall provide Tenant with a Subordination, Non-Disturbance Agreement in the form of Exhibit "F" attached hereto, from the Lender in place on the date of execution of this Lease. 31. Attorney's Fees. (a) If either party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such proceeding, action, or appeal thereon, shall be entitled to its reasonable attorney's fees and such fees as may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "prevailing party" shall include, without limitation, a party who obtains legal counsel or brings an action against the other by reason of the other's breach or default, or who defends such action, and substantially obtains or defeats the relief sought, whether by compromise, settlement, judgment, or abandonment of the claim or defense by the other party. (b) The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred in good faith. (c) Landlord shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. Landlord and Tenant agree that $350.00 is a reasonable -40- sum per occurrence for legal services and costs per preparation and service of a notice of default and that Landlord may include $350.00 as additional rent due in each such notice of default as an amount that must be paid to cure said default. 32. Landlord's Access. Landlord and Landlord's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or tenants (but as to prospective tenants only, such entry shall be during the last six (6) months during the term of this Lease or after an Event of Default only), and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Landlord may deem necessary or desirable. Landlord may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Tenant. Notwithstanding anything to the contrary in this Paragraph 32, except in the case of emergency or during periods in which Tenant is in default under this Lease, Landlord shall give Tenant notice at least two (2) business days in advance of Landlord's intent to enter the Premises and such entry shall be made during Tenant's business hours. 33. Auctions. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord's prior written consent. Notwithstanding anything to the contrary in this Lease, Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Tenant shall not place any sign upon the Premises without Landlord's prior written consent. Tenant shall have the right, at its sole cost and expense, to install a sign on the exterior of the Building identifying its name and logo. The graphics, materials, color, design, lettering, size, location and specifications of Tenant's signage shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed, and the approval of the City of Los Angeles. The sign shall be installed and maintained, at Tenant's sole cost and expense, pursuant to an installation and maintenance program approved and supervised by Landlord. At the expiration or earlier termination of this Lease, Landlord shall, at Tenant's sole cost and expense, cause the sign to be removed and the exterior of the Building affected by the sign to be restored to the condition existing prior to the installation of the sign. Landlord may disapprove any signage that contains a name which relates to an entity or individual which is of a character or reputation, or is associated with a political orientation or faction, which is materially inconsistent with the quality of the Building, or which would otherwise reasonably offend the landlord of a comparable building. This signage right is personal to the initially named Tenant and any assignee of the Lease consented to by Landlord or as to which Landlord's -41- consent is not required pursuant to Paragraph 12. In addition, so long as such additional sign otherwise meets the requirements of this Paragraph 34, in the event Tenant subleases a portion of the Premises in accordance with Paragraph 12, one subtenant of Tenant may have secondary "eyebrow" signage at one location on the Building identifying that one subtenant. 35. Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 36. Consents. Except for Paragraphs 33, 34 and 47 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. [Intentionally Omitted]. 38. Quiet Possession. Upon Tenant paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease, and all easements, covenants, conditions and restrictions of record. The individuals executing this Lease on behalf of Landlord represent and warrant to Tenant that they are fully authorized and legally capable of executing this Lease on behalf of Landlord and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (a) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Tenant has on other property of Landlord; (b) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Landlord or the right of first offer to lease other property of Landlord; (c) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Landlord, or the right of first refusal to purchase other property of Landlord or the right of first offer to purchase other property of Landlord. -42- 39.2 Options Personal; Multiple Options. Each Option granted to Tenant in this Lease is personal to Tenant and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Tenant, provided, however, the Options may be exercised by or assigned to any Tenant Affiliate as defined in Paragraph 12.4 of this Lease and assigned to any assignee of this Lease permitted under Paragraph 12 of this Lease. The Options herein granted to Tenant are not assignable separate and apart from this Lease. In the event that Tenant has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.3 Effect of Default on Options. (a) Tenant shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, if there is an Event of Default at the time of Tenant's exercise thereof. (b) All rights of Tenant under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Tenant's due and timely exercise of the Option, if, there is an Event of Default at the time of the commencement of the applicable Option Period. 39.4 First Option. Landlord hereby grants to Tenant the option to extend the term of this Lease for a five (5) year period commencing on the date the prior term expires (the "First Option Period") upon each and all of the following terms and conditions: (a) Tenant gives to Landlord, and Landlord actually receives, on a date which is prior to the date that the First Option Period would commence (if exercised) by at least ten (10) and not more than thirteen (13) months, a written notice of exercise of the option to extend this Lease for said additional term, time being of the essence. Such notice shall be delivered in accordance with Paragraph 23 hereof. If said notification of the exercise of said option is not so given and received, this option shall automatically expire; (b) The provisions of Paragraph 39, including the provision relating to default of Tenant set forth in Paragraph 39.3 of this Lease are conditions of this option; (c) All of the terms and conditions of this Lease except where specifically modified by this option shall apply, except that Tenant shall have no -43- further option to extend the term of this Lease other than for the option provided for in Paragraph 39.5; (d) Any prior Tenant that has not been expressly released from liability under this Lease, and any guarantor of the Tenant's performance hereunder, expressly reaffirms in writing the extension of their liability for the term of the option; and (e) The monthly Base Rent for each month of the First Option Period shall be the Fair Market Rent (as defined below) of the Premises as of the commencement of the First Option Period, but in no event less than the monthly Base Rent scheduled to be paid during the month prior to the commencement of the First Option Period. 39.5 Second Option. Landlord hereby grants to Tenant the option to extend the term of this Lease for a five (5) year period commencing on the date the First Option Period expires (the "Second Option Period") upon each and all of the following terms and conditions: (a) Tenant gives to Landlord, and Landlord actually receives, on a date which is prior to the date that the Second Option Period would commence (if exercised) by at least ten (10) and not more than thirteen (13) months, a written notice of exercise of the option to extend this Lease for said additional term, time being of the essence. Such notice shall be delivered in accordance with Paragraph 23 hereof. If said notification of the exercise of said option is not so given and received, this option shall automatically expire; (b) The provisions of Paragraph 39, including the provision relating to default of Tenant set forth in Paragraph 39.3 of this Lease are conditions of this option; (c) All of the terms and conditions of this Lease except where specifically modified by this option shall apply; except that Tenant shall have no further option to extend the term of this Lease; (d) Any prior Tenant that has not been expressly released from liability under this Lease, and any guarantor of the Tenant's performance hereunder, expressly reaffirms in writing the extension of their liability for the term of the option; and (e) The monthly Base Rent for each month of the second option period shall be the Fair Market Rent of the Premises as of the commencement of the -44- Second Option Period, but in no event less than the monthly Base Rent scheduled to be paid during the month prior to the commencement of the Second Option Period. 39.6 Fair Market Rent. (a) The term "Fair Market Rent" as used in this lease is defined to mean the rent, including all escalations, at which tenants are leasing non-sublease, non-encumbered, non-equity space comparable in size and quality to the Premises for the Option Period as to which Fair Market Rent is being determined in the Cascades Business Park, Van Nuys, Valencia area, giving appropriate consideration to the annual rental rates per square foot and the standard of measurement by which the square footage is measured and the remaining useful life of the roof existing on the comparable buildings used in determining Fair Market Rent. In determining Fair Market Rent it shall be assumed that: (i) The Premises are in good condition and repair and improved with only the Landlord Improvements and 6,000 square feet of office area and there shall be no deduction for depreciation, obsolescence or deferred maintenance (but less reasonable wear and tear as long as well maintained by Tenant). In the determination of Fair Market Rent, the value of improvements made by Tenant in the Premises shall not be taken into consideration. (ii) The Premises would be leased for the period of the option being exercised by a tenant with the credit standing of Tenant, as the same exists at that time. (iii) The Premises would be leased on the same terms of this Lease insofar as the obligations for repair, maintenance, insurance and real estate taxes existed as of the expiration of the original term of this Lease. (iv) No deduction shall be given nor consideration given to allowances for real estate brokerage commissions or tenant improvement allowances. (v) The Premises will be used for its highest and best use. (b) Determination By Landlord. Landlord shall initially determine the Fair Market Rent in each instance, and shall give Tenant notice (the "Market Rent Notice") of such determination and the basis on which such determination was made on or before the date that is nine (9) months prior to the date the applicable Option -45- Period would commence. Tenant shall have the right by written notice to Landlord no later than the fifteen (15) day after Landlord gives the Market Rent Notice to withdraw its exercise of the applicable option, in which event (a) Tenant shall have no further right or option to extend the term of this lease, and (b) Tenant's exercise of the applicable option shall be null and void. (c) Disputes re Fair Market Rent. In the event that Tenant notifies Landlord in writing, on or before the 20th business day following any Market Rent Notice, that Tenant disagrees with the applicable determination, Landlord and Tenant shall negotiate in good faith to resolve such dispute within 10 business days thereafter (The 30th business day after any Market Rent Notice is referred to herein as the "Outside Agreement Date.") If not resolved by the Outside Agreement Date each party shall submit to the other its determination of Fair Market Rent and the dispute shall be submitted to arbitration in accordance with the following paragraph titled "Arbitration Procedures." Until any such dispute is resolved, any applicable payments due under this Lease shall correspond to Landlord's determination and, if Tenant's determination becomes the final determination, Landlord shall refund any overpayments to Tenant, within 5 business days following the final resolution of the dispute. (d) Arbitration Procedures. (i) Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker who shall have been active over the 5-year period ending on the date of such appointment in the leasing of properties similar to the Premises in the surrounding area of Los Angeles County. The determination of the arbitrators shall be limited solely to the issue of whether Landlord's or Tenant's submitted Fair Market Rent for the Premises is the closest to the actual Fair Market Rent for the Premises as determined by the arbitrators, taking into account the requirements of this subparagraph regarding the same. Each such arbitrator shall be appointed within 15 days after the Outside Agreement Date. Landlord and Tenant may not consult with either such arbitrator prior to resolution. (ii) The two arbitrators so appointed shall within 15 days of the date of the appointment of the last appointed arbitrator, meet and attempt to reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Fair Market Rent, and shall notify Landlord and Tenant of their decision, if any. (iii). If the two arbitrators are unable to reach a decision, the two arbitrators shall, within 30 days of the date of the appointment of the -46- last appointed arbitrator, agree upon and appoint a 3rd arbitrator who shall be a broker who shall be qualified under the same criteria set forth hereinabove for qualification of the initial 2 arbitrators. (iv) The 3 arbitrators shall, within 30 days of the appointment of the 3rd arbitrator, reach a decision as to whether the parties shall use Landlord's or Tenant's submitted Fair Market Rent, and shall notify Landlord and Tenant thereof. (v) The decision of the majority of the 3 arbitrators shall be binding upon Landlord and Tenant. (vi) If either Landlord or Tenant fails to appoint an arbitrator within 15 days after the Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. (vii) If the 2 arbitrators fail to agree upon and to appoint a 3rd arbitrator, then the appointment of the 3rd arbitrator shall be dismissed, and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instructions set forth in this Lease. (viii) The cost of arbitration shall be paid by Landlord and Tenant equally. 40. [Intentionally Omitted]. 41. Security Measures. Tenant hereby acknowledges that the rental payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide same. Tenant assumes all responsibility for the protection of Tenant, its agents and invitees from acts of third parties. 42. Easements. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions (a) do not materially interfere with the use of the Premises by Tenant or the access to the Premises or parking on the Premises, (b) will not result in a material increase in the wear and tear on the Premises -47- due to increased usage by third parties, and (c) do not result in an increase in costs payable by Tenant under this Lease. Tenant shall sign any of the aforementioned documents upon request of Landlord and failure to do so shall constitute a material breach of this Lease by Tenant without the need for further notice to Tenant. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Tenant is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Tenant is a corporation, trust or partnership, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord evidence of such authority satisfactory to Landlord. 45. Cashier's Checks. (a) In the event that any check given to Landlord by Tenant shall not be honored by the bank upon which it is drawn on two or more occasions, then Landlord, at its option may require all future payments to be made by Tenant under this Lease to be made by cashier's checks. (b) Any payment made by Tenant pursuant to a written notice to pay or be deemed in default under this Lease shall be made by cashier's check. 46. Amendments to Lease. Tenant agrees to make any reasonable non-monetary modifications to this Lease that may be required by an institutional mortgagee of Landlord that do not increase Tenant's obligations or decrease the benefits under this Lease to Tenant. 47. Storage Tanks. (a) Notwithstanding anything to the contrary in Paragraph 7.5 hereof, Tenant shall not install storage tanks of any size or shape in the Premises, above or -48- below ground, without the consent of the Landlord which can be withheld in Landlord's sole discretion. If Landlord elects to grant its consent, Landlord shall have the right to condition its consent upon Tenant agreeing to give to Landlord such assurances that Landlord, in its sole discretion, deems necessary to protect itself against potential problems concerning the installation, use, removal and contamination of the Premises as a result of the installation and/or use of such tank, including but not limited to the installation of a concrete encasement for said tank. Tenant shall comply at its expense with all applicable permit and/or registration requirements and repair any damage caused by the installation, maintenance or removal of such tank. Upon termination of the Lease, Tenant shall, at its sole cost and expense, remove any tank from the Premises, remove and replace any contaminated soil or materials (and compact or treat the same as then required by law) and repair any damage or change to the Premises caused by said installation and/or removal. Nothing contained herein shall be construed to diminish or reduce Tenant's obligations under Paragraph 48. (b) Landlord shall have the right to employ experts and/or consultants, at Tenant's expense, to advise Landlord with respect to the installation, operation, monitoring, maintenance and removal and restoration of any such tank. (c) Landlord hereby consents to the Tenant's installation of an above-ground diesel fuel storage tank of not to exceed 600 gallons having a design and location as shown on Exhibit "C" solely for the purpose of serving a diesel-operated emergency generator; provided that (i) such storage tank is installed, maintained, operated and removed in accordance with the requirements of this Lease and at Tenant's sole cost and expense, (ii) Landlord may require the installation of a concrete encasement for such tank at Tenant's sole cost and expense and (iii) Tenant removes such tank prior to expiration or earlier termination of the term of this Lease. Tenant shall provide Landlord with copies of all licenses and permits required by Applicable Law in connection with Tenant's installation, operation, maintenance and removal of such tank. 48. Tenant's Covenants Regarding Hazardous Materials. 48.1 Landlord's Prior Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant has not caused or permitted, and shall not cause or permit any "Hazardous Materials" (as defined in Paragraph 48.2, below) to be brought upon, kept, stored, discharged, released or used in, under or about the Premises by Tenant, its agents, employees, contractors, subcontractors, licensees or invitees, unless (a) such Hazardous Materials are reasonably necessary to Tenant's business and will be handled, used, kept, stored and disposed of in a manner which complies with all "Hazardous Materials Laws" (as defined in Paragraph 48.2, below); (b) Tenant will -49- comply with such other rules or requirements as Landlord may from time to time impose, including without limitation that (i) such materials are properly labeled and contained, (ii) such materials are handled and disposed of in accordance with prudent industry standards for safety, storage, use and disposal, (iii) such materials are for use in the ordinary course of business, (c) notice of and a copy of the current material safety data sheet is provided to Landlord for each such Hazardous Material, and (d) Landlord shall have granted its prior written consent to the use of such Hazardous Materials. 48.2 Compliance with Hazardous Materials Laws. As used herein, the term "Hazardous Materials" means any (a) oil, petroleum, petroleum products, flammable substances, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other wastes, materials or pollutants which (i) pose a hazard to the Premises or to persons on or about the Premises or (ii) cause the Premises to be in violation of any Hazardous Materials Laws (as hereinafter defined); (b) asbestos in any form, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls, or radon gas; (c) chemical, material or substance defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or words of similar import under any applicable local, state or federal law or under the regulations adopted or publications promulgated pursuant thereto, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Resources Conservation Recovery Act, 42 U.S.C. Section 6901, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; Sections 25115; 25117, 25122.7, 25140, 25249.8, 25281, 25316 and 25501 of the California Health and Safety Code; and Article 9 or Article 11 of Title 22 of the California Code of Regulations, Division 4, Chapter 20; (d) other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises, or any other Person coming upon the Premises or adjacent property; and (e) other chemical, materials or substance which may or could pose a hazard to the environment. As used herein the term "Hazardous Materials Laws" means any federal, state or local laws, ordinances, regulations or policies relating to the environment, health and safety, and Hazardous Materials (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) or to industrial hygiene or the environmental conditions on, under or about the Premises, including, without limitation, soil, groundwater and -50- indoor and ambient air conditions. Tenant shall at all times and in all respects comply with all Hazardous Materials Laws. 48.3 Hazardous Materials Removal. Upon expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause all Hazardous Materials brought on the Premises to be removed from the Premises in compliance with all applicable Hazardous Materials Laws. If Tenant or its employees, agents, or contractors violates the provisions of the foregoing two paragraphs, or if Tenant's acts, negligence, or business operations contaminate, or expand the scope of contamination of, the Premises from such Hazardous Materials, then Tenant shall promptly, at Tenant's expense, take all investigatory and/or remedial action (collectively, the "Remediation") that is necessary in order to clean up, remove and dispose of such Hazardous Materials causing the violation on the Premises or the underlying groundwater or the properties adjacent to the Premises to the extent such contamination was caused by Tenant, in compliance with all applicable Hazardous Materials Laws. Tenant shall further repair any damage to the Premises caused by the Hazardous Materials contamination. Tenant shall provide prior written notice to Landlord of such Remediation, and Tenant shall commence such Remediation no later than thirty (30) days after such notice to Landlord and diligently and continuously complete such Remediation. Such written notice shall also include Tenant's method, time and procedure for such Remediation and Landlord shall have the right to require reasonable changes in such method, time or procedure of the Remediation. Tenant shall not take any Remediation in response to the presence of any Hazardous Materials in or about the Premises or 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 interests with respect thereto. 48.4 Notices. Tenant shall immediately notify Landlord in writing of: (a) any enforcement, cleanup, removal or other governmental or regulatory action threatened, instituted, or completed pursuant to any Hazardous Materials Laws with respect to the Premises; (b) any claim, demand, or complaint made or threatened by any person against Tenant or the Premises relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials; and (c) any reports made to any governmental authority arising out of any Hazardous Materials on or removed from the Premises. Landlord shall have the right (but not the obligation) to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any Hazardous Materials Laws. -51- 48.5 Indemnification of Landlord. Tenant shall indemnify, protect, defend and forever hold Landlord harmless from any and all damages, losses, expenses, liabilities, obligations and costs arising out of any failure of Tenant to observe the foregoing covenants in Paragraphs 47 and 48. The provisions of Paragraphs 47 and 48 shall survive the expiration or earlier termination of the Lease. 48.6 Preexisting Conditions. Notwithstanding anything to the contrary in this Lease, Tenant shall not be liable to Landlord under this Lease for any cost associated with Hazardous Materials, if any, to the extent that the Hazardous Materials existed on the Premises prior to the date of this Lease and were not brought on to the Premises by Tenant, its agents, employees, contractors, subcontractors, licensees or invitees (the "Preexisting Conditions"). Without limiting any other provision of this Lease, Tenant shall provide Landlord with the original of any notices or other documents received by Tenant in connection with the Preexisting Conditions. 48.7 Studies. Tenant acknowledges receipt of a copy of the reports described in Exhibit "J" attached hereto (collectively, "Hazardous Substance Reports"). Landlord, except as provided in the following sentence of this paragraph, makes no representations or warranties whatsoever to Tenant regarding: (i) the Hazardous Substance Reports (including, without limitation, the contents and/or accuracy thereof); or (ii) the presence or absence of toxic or Hazardous Materials in, at, or under the Premises, the Building or any other property. Landlord does acknowledge to Tenant that: (i) Landlord has not authorized any other studies for hazardous or toxic materials at the Premises or Building other than the Hazardous Substance Reports; and (ii) Landlord does not know of any surveys for toxic or Hazardous Materials at the Premises or the Building other than the Hazardous Substance Reports. Notwithstanding the preceding sentence, Tenant: (a) shall not rely on and Tenant hereby represents to Landlord that it has not relied on the Hazardous Substance Reports; and (b) shall make such studies and investigations, conduct such tests and surveys, and engage such specialists as Tenant deems appropriate to fairly evaluate the Premises and any risks from hazardous or toxic materials. In connection with any inspections or tests to be conducted by Tenant at the Premises or Building, Tenant shall first notify Landlord of each proposed inspection or test and the scope, impact, and intent thereof and obtain Landlord's written consent to perform the same. Tenant shall restore the Premises and the property on which the leased premises are located to the condition existing immediately prior to any such test and/or inspection and will provide Landlord with true and complete copies of any survey or report obtained by or for the benefit of Tenant in connection with hazardous or toxic materials that concern the Building or the Premises. -52- 48.8 Certain Permitted Items. Landlord hereby consents to the use of limited quantities of standard office and janitorial supplies containing chemicals categorized as Hazardous Materials and those items containing Hazardous Materials described in Exhibit "G" attached hereto, provided that Tenant shall use, store and dispose of all such Hazardous Materials in strict compliance with all Hazardous Materials Laws and comply at all times during the term of this Lease with all Hazardous Materials Laws. 49. [Intentionally Omitted]. 50. Easements and Restrictions of Record 50.1 Tenant accept the Premises subject to the easements and covenants or restrictions of record, including without limitation the CC&R's and the Articles, Bylaws and Association Rules (as those terms are defined in the CC&R's). Any failure of Tenant to comply with the terms of the foregoing documents shall be a default under this Lease. Landlord has delivered to Tenant copies of all the documents referred to the first sentence of this Paragraph 50.1 prior to the Commencement Date. 50.2 Landlord and Tenant agree to cooperate and use their best efforts to participate in traffic management programs generally applicable to businesses located in the area which includes the Industrial Center and, initially, shall encourage and support van and car pooling by Tenant's employees to the fullest extent permitted by the requirements of Tenant's business. Neither this Paragraph nor any other provision in this Lease, however, is intended to or shall create any rights or benefits in any other person, firm, company, governmental entity or the public. 51. Offer. Preparation of this Lease by Landlord or Landlord's agent and submission of same to Tenant shall not be deemed an offer to lease. This Lease shall become binding upon Landlord and Tenant only when fully executed by Landlord and Tenant. 52. Waiver of Trial by Jury. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY AND CONSENT TO TRIAL WITHOUT A JURY IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER LANDLORD OR TENANT AGAINST THE OTHER IN CONNECTION WITH THIS LEASE. 53. ERISA. Tenant hereby represents and warrants to Landlord that (i) Tenant is not a "party in interest" (within the meaning of Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended) or a "disqualified person" -53- (within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended) with respect to any retirement or pension plan of The Prudential Insurance Company of America, and (ii) no portion of or interest in the Lease will be treated as a "plan asset" within the meaning of Regulation 29 CFR Section 2510.3-101 issued by the Department of Labor. 54. Parking. The Premises shall include at least 157 parking spaces in the areas shown on Exhibit "A" for Tenant's exclusive use. Tenant by notice to Landlord may request that Landlord inform Tenant as to whether Landlord has any excess parking available in the Cascades Business Park then owned by Landlord. Within ten (10) days after receipt of notice from Landlord identifying any available parking spaces, Tenant may offer to lease such excess parking. Nothing in this Paragraph 54 constitutes an assurance to Tenant that any such additional parking spaces will be available or that Landlord and Tenant will reach agreement on the terms of the leasing of such additional parking spaces. 55. Landlord Shell Improvements. Landlord, at Landlord's sole cost, has constructed or shall construct the following improvements (collectively, the "Landlord Improvements"): 55.1 Building and Lot Improvements as defined in Drawings A-1 through P-3 (dated January 10, 2000) entitled Royal Clark Development Company 60K Spec Building and by the Project Manual related thereto (dated February 22, 2000) entitled Cascades Building Park 106K 200K and 60K Buildings, Site and Shell Building Improvements. The Landlord Improvements shall be inclusive of all project management, development, architectural, engineering and permitting fees therefor. 55.2 Landlord shall provide that the existing exterior walls, shared shear wall and existing roof column will be delivered with footings designed to support a future mezzanine of approximately 6,000 square feet. 56. Tenant Improvements. Tenant shall construct in the Premises certain Tenant Improvements on the terms an conditions contained in Exhibit "B" attached hereto. 57. Additional Mezzanine Space. Tenant shall have the right at Tenant's sole cost and expense to build out additional mezzanine space in the Premises during the term of this Lease. Such construction shall be undertaken in compliance with the terms and conditions of this Lease, including without limitation Paragraph 7.5. 58. Self Help. If Tenant provides written notice to Landlord of an event or circumstance which requires the action of Landlord with respect to repair and/or -54- maintenance of Landlord Structural Items, and Landlord fails to provide such action within thirty (30) days after receipt of such written notice, then Tenant may proceed to take the required action upon delivery of an additional seven (7) business days' written notice to Landlord specifying that Tenant is taking such required action (provided, however, that neither of the notices shall be required in the event of an emergency which threatens life or health or where there is imminent danger to property), and if such action was required under the terms of the Lease to be taken by Landlord, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action. In the event that Tenant takes such action, Tenant shall use only those contractors used by Landlord in the Building for work on the Landlord Structural Items unless such contractors are unwilling or unable to perform, or timely perform, such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in comparable buildings. Further, if Landlord does not pay the amount of Tenant's invoice or deliver a written objection to Tenant within thirty (30) days after receipt of an invoice by Tenant of its costs of taking action which Tenant claims should have been taken by Landlord, and if such invoice from Tenant sets forth a reasonably particularized breakdown of its costs and expenses in connection with taking such action on behalf of Landlord, then Tenant shall be entitled to deduct from Rent payable by Tenant under this Lease, the amount set forth in such invoice. If, however, Landlord delivers to Tenant, within thirty (30) days after receipt of Tenant's invoice, a written objection to the payment of such invoice setting forth with reasonable particularity Landlord's reasons for its claim that such action did not have to be taken by Landlord pursuant to the terms of this Lease, or that the charges are excessive (in which case Landlord shall pay the amount it contends would not have been excessive), then Tenant shall not be entitled to such deduction from rent, but, as Tenant's sole remedy, Tenant may proceed to claim a default by Landlord. If such claim results in a final judgment in Tenant's favor, and Landlord does not pay that judgment within 30 days after it becomes final, Tenant may offset such amounts as so determined from Rent until fully paid to Tenant. Any work undertaken by Tenant pursuant to this Paragraph 58 shall be subject to the following: (a) All such work shall be diligently pursued to completion. (b) The work undertaken by the Tenant shall be the minimum amount of work reasonably necessary for Tenant to correct or cure the problem or failure of Landlord to act addressed by Tenant's notices pursuant to this Paragraph 58. -55- LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES. "LANDLORD": SILVER OAKS LLC, a California limited liability company By: Royal-Clark Development Co., a Hawaii general partnership Its: Managing Member By: Royal Contracting Co., Ltd., a Hawaii corporation Its: General Partner By: /s/ David Hulihee ------------------------- David Hulihee, President By: SMA Development Corp., a Hawaii corporation Its: General Partner By: /s/ Thomas F. Clark -------------------------- Thomas F. Clark, President -56- "TENANT": BROOKS AUTOMATION, INC., a Delaware corporation By: /s/ Ellen B. Richstone ------------------------------- Ellen B. Richstone ------------------------------- [Printed Name and Title] Senior Vice President, Finance & Adm., Chief Financial Officer -57- EX-10.26 7 b40853baex10-26.txt LEASE BETWEEN PROGRESSIVE TECHNOLOGIES INC. ... Exhibit 10.26 - -------------------------------------------------------------------------------- LEASE BY AND BETWEEN PROGRESSIVE TECHNOLOGIES, INC. AND AMES POND LLC, a Delaware limited liability company of 200 Ames Pond Tewksbury, Massachusetts DATED July 18, 2000 - -------------------------------------------------------------------------------- CONTENTS 1. REFERENCE DATA 1 2. DESCRIPTION OF DEMISED PREMISES 1 2.1. Demised Premises ........................................... 1 2.2. Intentionally Deleted ...................................... 1 2.3. Appurtenant Rights ......................................... 1 2.4. Exclusions and Reservations ................................ 2 3. TERM OF LEASE 2 3.1. Definitions ................................................ 2 3.2. Habendum ................................................... 2 3.3. Rent Abatement ............................................. 2 3.4. Option to Extend Term ...................................... 2 4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM 3 COMMENCEMENT DATE 3 4.1. Landlord's Work ............................................ 3 4.2. Commencement of Tenant Improvement Work by Tenant Prior to Term Commencement Date ..................................... 3 5. USE OF PREMISES 3 5.1. Permitted Use .............................................. 3 5.2. Prohibited Uses ............................................ 3 5.3. Licenses and Permits ....................................... 3 5.4. Condition of Premises ...................................... 4 6. RENT 4 7. RENTABLE AREA 4 8. SERVICES FURNISHED BY LANDLORD 4 8.1. Building Services ........................................... 4 8.2. Water ....................................................... 4 8.3. Elevators and Cleaning ...................................... 4 8.4. Intentionally Deleted ....................................... 4 8.5. Additional Cleaning Services ................................ 4 8.6. Additional Air Conditioning Services ........................ 4 8.7. Repairs and Maintenance ..................................... 5 8.8. Interruption or Curtailment of Services ..................... 5 8.9. Energy Conservation ......................................... 5 8.10. Miscellaneous ............................................... 5 9. ESCALATION 5 9.1. Definitions ................................................. 5 9.2. Expense Stop ................................................ 7 9.3. Part Years .................................................. 7 9.4. Disputes, etc. .............................................. 7 9.5. Tenant's Right to Audit ..................................... 7 10. CHANGES OR ALTERATIONS BY LANDLORD 7 11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT 7 12. ALTERATIONS AND IMPROVEMENTS BY TENANT 7 13. TENANTS CONTRACTORS - MECHANICS AND OTHER LIENS - STANDARD OF TENANT'S PERFORMANCE - COMPLIANCE WITH LAWS 8 14. REPAIRS BY TENANT - FLOOR LOAD 8 14.1. Repairs by Tenant ........................................... 8 14.2. Floor Load - Heavy Machinery ................................ 9 14.3. Electric Current ............................................ 9 15. INSURANCE INDEMNIFICATION, EXONERATION AND EXCULPATION 9 15.1. Insurance - Tenant .......................................... 9 15.2. Certificates of Insurance ................................... 10 15.3. General ..................................................... 10 15.4. Property of Tenant .......................................... 10 15.5. Bursting of Pipes, etc. ..................................... 10 15.6. Repairs and Alterations - No Diminution of Rental Value ..... 10 15.7. Landlord's Insurance Requirements ........................... 10 16. ASSIGNMENT, MORTGAGING AND SUBLETTING 10 16.1. Landlord's Consent Required ................................. 10 16.2. Terms and Conditions ........................................ 11 16.3. Additional Terms and Conditions Applicable to Subletting .... 11 16.4. Transfer Premium from Assignment or Subletting .............. 12 16.5. Landlord's Option to Recapture Space ........................ 12 16.6. Landlord's Expenses ......................................... 12 17. MISCELLANEOUS COVENANTS 12 17.1. Rules and Regulations ....................................... 12 17.2. Access to Premises - Shoring ................................ 12 17.3. Accidents to Sanitary and Other Systems ..................... 13 17.4. Signs, Blinds and Drapes .................................... 13 17.5. Estoppel Certificate ........................................ 13 17.6. Hazardous Materials ......................................... 13 17.7. Medical Waste Disposal ...................................... 13 17.8. Prohibited Materials and Property ........................... 14 17.9. Requirements of Law - Fines and Penalties ................... 14 17.10. Tenant's Acts - Effect on Insurance ......................... 14 17.11. Miscellaneous ............................................... 14 18. DAMAGE OR DESTRUCTION. 14 15.1. Effect of Damage or Destruction ............................. 14 15.2. Definition of Material Damages .............................. 14 15.3. Abatement of Rent ........................................... 14 15.4. Tenant's Negligence ......................................... 14 15.5. Tenant's Property ........................................... 15 19. WAIVER OF SUBROGATION 15 20. CONDEMNATION - EMINENT DOMAIN 15 21. DEFAULT REMEDIES 15 21.1. Default by Tenant ........................................... 15 21.2. Damages - Assignment for Benefit of Creditors ............... 16
-i- 21.3. Remedies........................................................ 16 21.4. Default by Landlord............................................. 16 21.5. Late Charges.................................................... 17 21.6. Interest on Past-due Obligations................................ 17 21.7. Payment of Rent after Default................................... 17 21.8. Fees and Expenses............................................... 17 21.9. Landlord's Remedies Not Exclusive............................... 17 22. END OF TERM -- ABANDONED PROPERTY 17 23. SUBORDINATION 18 24. QUIET ENJOYMENT 19 25. LANDLORD RESERVATIONS 19 26. CHANGES TO BUILDING 19 27. ENTIRE AGREEMENT -- WAIVER -- SURRENDER 19 27.1. Entire Agreement................................................ 19 27.2. Waiver by Landlord.............................................. 19 27.3. Surrender....................................................... 19 28. INABILITY TO PERFORM -- EXCULPATORY CLAUSE 19 29. BILLS AND NOTICES 20 30. PARTIES BOUND -- SEIZING OF TITLE 20 31. MISCELLANEOUS 20 31.1. Separability.................................................... 21 31.2. Captions, etc. ................................................. 21 31.3. Broker.......................................................... 21 31.4. Security Measures............................................... 21 31.5. Easements....................................................... 21 31.6. Amendments; Modifications....................................... 21 31.7. Arbitration..................................................... 21 31.8. Governing Law................................................... 21 31.9. Assignment of Rents............................................. 21 31.10. Representation of Authority.................................... 21 31.11. Expenses Incurred by Landlord Upon Tenant Requests............. 22 31.12. Survival....................................................... 22 31.13. Time of Essence................................................ 22 31.14. Covenants...................................................... 22 31.15. Attorneys' Fees................................................ 22 31.16. Auctions....................................................... 22 31.17. Merger......................................................... 22 31.18. Authority...................................................... 22 31.19. Conflict....................................................... 22 31.20. Interpretation................................................. 22 31.21. Relationship of Parties........................................ 22 31.22. Rules and Regulations.......................................... 22 31.23. Right to Lease................................................. 22 31.24. Security for Performance of Tenant's Obligations............... 22 31.25. Financial Statements........................................... 22 31.26. Attachments.................................................... 23 31.27. Security Deposit............................................... 23 31.28. Notice of Lease; Recording..................................... 23 EXHIBITS Exhibit 1 Verification Letter......................................... Exhibit 2 Lease Plan.................................................. Exhibit 3 Building Services........................................... Exhibit 4 Rules and Regulations....................................... Exhibit 5 Building Legal Description.................................. Exhibit 6 Tenant Improvement Work..................................... -ii- LEASE SUMMARY SHEET Execution Date: July __, 2000 Tenant: Progressive Technologies, Inc., a Massachusetts corporation 200 Ames Pond Drive, Tewksbury, MA 01876-1274 (Principal place of business - mailing address) Landlord: Ames Pond LLC a Delaware limited liability company Landlord's Address for Payment of Rent and Delivery of Notices 121 High Street Boston, MA 02110 Building: 200 Ames Pond, Tewksbury, Massachusetts 01876. The Building is located on the parcel of land ("Land") described on Exhibit 5. Premises: Approximately 39,082 rentable square feet on the second floor of the Building as shown on the Lease Plan attached hereto as Exhibit 2. Term Commencement Date: See Article 3.1(b) Termination Date: Five (5) years after Term Commencement Date Option to Extend: One (1) additional term of five (5) years. Use of Premises: Office uses, assembly, light manufacturing and research and development Rent: Yearly Monthly ------ ------- Years 1-3 $820,722.00 $68,393.50 Years 4&5 $850,033.50 $70,836.12 Total Rentable Area of Premises: 39,082 square feet Total Rentable Area of Building: 76,400 square feet Operating Costs Base Year: Calendar Year 2001 Tax Expenses Base Year: Fiscal Year 2000 Tenant's Proportionate Share: 51.15% Security Deposit: See Section 31.30 Brokers: For Landlord: Insignia/ESG, Inc. For Tenant: CB Richard Ellis Attachments: Exhibit 1 Verification Letter; Exhibit 2 Lease Plan; Exhibit 3 Building Services; Exhibit 4 Rules and Regulations; Exhibit 5 Building Legal Description; and Exhibit 6 Plans and Specifications-Landlord's Work. THIS INDENTURE OF LEASE made and entered into on the Execution Date as stated in Lease Summary Sheet and between the Landlord and the Tenant named in Lease Summary Sheet. Landlord does hereby demise and lease to Tenant, and Tenant does hereby lease, hire and take from Landlord, the premises hereinafter mentioned and described (hereinafter referred to as "Premises"), upon and subject to the covenants, agreements, terms, provisions and conditions of this Lease for the term hereinafter stated: 1. REFERENCE DATA Each reference in this Lease to any of the terms and titles contained in any Exhibit attached to this Lease shall be deemed and construed to incorporate the data stated under that term or title in such Exhibit. 2. DESCRIPTION OF DEMISED PREMISES 2.1 Demises Premises. The Premises are that portion of the Building as described in Lease Summary Sheet (as the same may from time to time be constituted after changes therein, additions thereto and eliminations therefrom pursuant to rights of Landlord hereinafter reserved) and is hereinafter referred to as "Building", substantially as shown hatched or outlined on the Lease Plan (Exhibit 2) hereto attached and incorporated by reference as a part hereof. 2.2 Intentionally Deleted. 2.3 Appurtenant Rights. Tenant shall have, as appurtenant to the Premises, rights to use in common, with others entitled thereto, subject to reasonable rules from time to time made by Landlord of which Tenant is given notice; (a) the common lobbies, hallways, stairways and elevators of the Building serving the Premises in common with others, (b) common -1- walkways necessary for access to the Building, (c) if the Premises include less than the entire rentable area of any floor, the common toilets and other common facilities of such floor and (d) the cafeteria located in the other building on the Land (collectively, the "Common Areas"); and no other appurtenant rights or easements. Notwithstanding anything to the contrary herein contained, Tenant shall obtain Landlord's consent (which consent shall not be unreasonably withheld or delayed) prior to allowing any telecommunication service provider access to the Building or to the Premises. As of the Execution Date of this Lease, there are approximately 3.0 parking spaces in the parking areas designated for use by the tenants of the Building for every 1,000 square feet of Total Rentable Area of Building (as defined in Lease Summary Sheet). Nothing contained in the Lease shall prohibit or otherwise restrict Landlord from changing, from time to time, without notice to Tenant, the location, layout or type of such parking areas, provided that Landlord shall not substantially reduce the number of parking spaces available for such tenant's use and shall not relocate any or all of the parking spaces outside of the boundary of the land. Subject to reasonable rules from time to time made by Landlord of which Tenant is given notice, Tenant shall have the right, in common with all other tenants of the Building, to use such parking areas, without charge, on a first-come, first-served basis. 2.4. EXCLUSIONS AND RESERVATIONS. All the perimeter walls of the Premises except the inner surfaces thereof, any balconies (except to the extent same are shown as part of the Premises on the Lease Plan (Exhibit 2)), terraces or roofs adjacent to the Premises, and any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, and the use thereof, as well as the right of access through the Premises for the purposes of operation, maintenance, decoration and repair, are expressly excluded from the Premises and reserved to Landlord. Landlord shall exercise such rights of access only after providing advance notice to Tenant (except in the case of an emergency), and in exercising such rights shall use reasonable efforts not to interfere with the operation of Tenant's business at the Premises. 3. TERM OF LEASE 3.1. DEFINITIONS. As used in this Lease the phrase "Term Commencement Date" shall have the following meaning: The "Term Commencement Date" shall be January 1, 2001. 3.2. HABENDUM. TO HAVE AND TO HOLD the Premises for a term of years commencing on the Term Commencement Date and ending on the Termination Date as stated in the Lease Summary Sheet or on such earlier date upon which said term may expire or be terminated pursuant to any of the conditions of limitation or other provisions of this Lease or pursuant to law or such later date as the term may be extended to pursuant to Section 3.4 hereof (which date for the termination of the terms hereof will hereafter be called "Termination Date"). Notwithstanding the foregoing, if the Termination Date as stated in the Lease Summary Sheet shall fall on other than the last day of a calendar month, said Termination Date shall be deemed to be the last day of the calendar month in which said Termination Date occurs. If the Term Commencement Date and the Termination Date are not determined at the time that a Notice of Lease has been executed by the parties, then each of the parties hereto agrees, upon demand of the other party after the Term Commencement Date and Termination Date have been determined, to join in the execution, in recordable form, of a statutory notice, memorandum, etc. of lease and/or written declaration in which shall be stated such Term Commencement Date and (if need be) the Termination Date. If this Lease is terminated before the term expires, then upon Landlord's request the parties shall execute, deliver and record an instrument acknowledging such fact and the date of termination of this Lease, and Tenant hereby appoints Landlord its attorney-in-fact in its name and behalf solely for the purposes of executing such instrument if Tenant shall fail to execute and deliver such instrument after Landlord's request therefor within ten (10) days. 3.3. RENT ABATEMENT. In the event that Landlord is unable to deliver the Premises to Tenant by the Commencement Date, Tenant shall be entitled to an abatement of rent during the period prior to Landlord's delivery of the Premises, unless Landlord's delay is due to fire, act of God, governmental act or failure to act, strike, labor dispute, inability to procure materials, war or any other cause beyond Landlord's reasonable control. 3.4. OPTION TO EXTEND TERM (a) Provided that (i) there exists no Event of Default under this Lease and (ii) this Lease is still in full force and effect, Tenant shall have the option to extend the term of this Lease for one (1) extended term (the "Extended Term"), having a length of five (5) years. Tenant shall exercise such option by giving Landlord written notice, not later than nine (9) months prior to the Termination Date, it being agreed that time shall be of the essence with respect to the giving of such notice. The Extended Term shall commence on the day immediately following the Termination Date and shall end on the day which is five (5) years thereafter, and shall be on all the terms and conditions of this Lease, except that the rent for the Extended Term shall be determined in accordance with this Article 3.4. (b) The rent for the Extended Term shall be equal to the greater of (i) the Prevailing Market Rate (as hereinafter defined) for the Premises and (ii) the Annual Rent for the last year of the initial term of the Lease immediately preceding the Extended Term. As used herein, the term "Prevailing Market Rate" for the Premises shall mean the rental that Landlord would be able to obtain from a third party desiring to lease the Premises for the Extension Term taking into account the age of the Building, the size, location and floor levels of the Premises, the quality of construction of the Building and the Premises, the services provided under the terms of this Lease, the rental then being obtained for new leases of space comparable to the Premises in the locality of the Building, and all other material factors that would be relevant to a third party desiring to lease the Premises for the Extension Term in determining the rental such party would be willing to pay therefor. Prevailing Market Rate shall be determined based on new rentals for similar space with standard tenant improvement allowances and standard leasing commissions, even though Landlord shall not be obligated to provide a leasing commission with the extension option and Tenant shall not receive any tenant improvement allowance. No later than one hundred twenty (120) days prior to commencement of the Extension Term, Landlord shall notify Tenant of Landlord's determination of the Prevailing Market Rate to be used to calculate the annual rent for the Extension Term. If Tenant wishes to dispute Landlord's determination, Tenant shall give notice to Landlord of Tenant's intent to submit the matter to the appraisal process described below within thirty (30) days after receipt of notice of Landlord's determination. If Tenant so elects, then within fifteen (15) days after the date of Tenant's notice of its election to submit the matter to the appraisal process, each party, at its cost, shall engage a real estate appraiser to act on its behalf in determining the Prevailing Market Rate for the Premises for the Extension Term. The appraisers shall have at least five (5) years' commercial experience in the Greater Boston Metropolitan Area, to be designated as MAI appraisers, and shall be persons who would qualify as expert witnesses over objection to give opinion testimony on the issue of the Prevailing Market Rate for the Premises in a court of competent jurisdiction. If a party does not appoint an appraiser within fifteen (15) days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Prevailing Market Rate for the Premises for the Extension Term. If the appraisers are appointed by the parties as stated in this Section, -2- such appraisers shall meet promptly and attempt to set the Prevailing Market Rate for the Premises for the Extension Term. If such appraisers are unable to agree within thirty (30) days after appointment of the second appraiser, the appraisers shall elect a third appraiser meeting the qualifications stated in this paragraph with ten (10) days after the last date the two appraisers are given to set the Prevailing Market Rate for the Premises. Within thirty (30) days after the selection of the third appraiser, each appraiser shall, within fifteen (15) days thereafter, render a separate appraisal. The rental values and terms arrived at by the three appraisers shall be averaged, and the resulting average shall be deemed the Prevailing Market Rate for the Premises for the Extension Term. However, in the event that the Prevailing Market Rate arrived at in any of the appraisals is more than ten percent (10%) higher or lower than the middle appraised Prevailing Market Rate, such high or low appraisal or appraisals shall be discarded and the remaining two appraised values shall be averaged, if there are two, or the remaining one appraised value shall be used, if there is one. If either by agreement of the parties or by appraisal the Prevailing Market Rate is not finally determined by the commencement of the Extension Term, then Tenant shall make monthly payments of Annual Rent at the rate designated by Landlord until such time as the Prevailing Market Rate is finally determined by agreement of the parties or by an appraiser. If the monthly Prevailing Market Rate as finally determined for the Extension Term exceeds the monthly amount previously paid by Tenant for the Extension Term, Tenant shall forthwith pay the difference to Landlord for each of the months Tenant paid the lesser amount. If the monthly Prevailing Market Rate as finally determined for the Extension Term is less than the monthly amount previously paid by Tenant for the Extension Term, Landlord shall forthwith pay the difference to Tenant for each of the months Tenant paid the greater amount. (c) Notwithstanding anything contained herein to the contrary, if an Event of Default occurs at any time after the exercise of the extension option and prior to the first day of the Extension Term, Landlord may elect, by written notice to Tenant, to reject Tenant's exercise of the extension option. If Landlord so rejects Tenant's exercise of the extension option, the extension option shall be null and void. 4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE Prior to the Term Commencement Date, Tenant shall substantially complete certain improvements in the Premises in accordance with the terms of the work letter attached as Exhibit 6. 4.1. LANDLORD'S WORK. Tenant acknowledges and agrees that Tenant is accepting the Building and the Premises in their "as is" condition and Landlord shall not be obligated to construct any improvements on behalf of Tenant. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, the Building, or any part thereof, or to provide any allowance for such purposes (except as specifically set forth in Exhibit 6), and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant. Notwithstanding the foregoing, Landlord shall promptly undertake to: (i) replace the countertops in the existing men's and women's bathrooms located on the second floor of the Building; (ii) paint the men's and women's bathrooms located on the second floor of the Building; (iii) install auto-flush sensors on the toilets and urinals in the men's bathroom located on the second floor of the Building; and (iv) install emergency lighting in the men's and women's bathrooms located on the second floor of the Building. 4.2. COMMENCEMENT OF TENANT IMPROVEMENT WORK BY TENANT PRIOR TO TERM COMMENCEMENT DATE. Tenant shall have the right to undertake the Tenant Improvement Work described on Exhibit 6 thirty-one (31) days prior to the Term Commencement Date, during normal business hours and without payment of rent, to prepare the Premises for occupancy, provided, however, that Tenant shall notify Landlord in writing of such intention ten (10) days prior to the commencement of the Tenant Improvement Work. Such right of entry shall be deemed a license from Landlord to Tenant, and any entry thereunder shall be at the risk of Tenant; provided, however, that Tenant has not begun operating its business from the Premises, and subject to all of the terms and conditions of the Lease, the foregoing activity shall not constitute the delivery of possession of the Premises to Tenant and the term of the Lease shall not commence as a result of said activities. Prior to the entering the Premises Tenant shall obtain all insurance it is required to obtain by the Lease and shall provide certificates of said insurance to Landlord. 5. USE OF PREMISES 5.1. PERMITTED USE. Tenant shall be entitled to use the Premises only for the purposes as stated in the Lease Summary Sheet and for no other purposes. Service and utility areas (whether or not a part of the Premises) shall be used only for the particular purpose for which they were designed. General office use, by way of example and not limitation, shall not include medical office use or any similar use, laboratory use, classroom use, any use not characterized by applicable zoning and land use restrictions as general office use, or any use which would require Landlord or Tenant to obtain a conditional use permit or variance from any federal, state or local authority, or any other use not compatible, in Landlord's sole judgment, with a first class office building. No exclusive use has been granted to Tenant hereunder. 5.2. PROHIBITED USES. Notwithstanding any other provision of this Lease, Tenant shall not use, or suffer or permit the use or occupancy of, or suffer or permit anything to be done in or anything to be brought into or kept in or about the Premises or the Building or any part thereof (including, without limitation, any materials appliances or equipment used in the construction or other preparation of the Premises and furniture and carpeting): (i) which would violate any of the covenants, agreements, terms, provisions and conditions of this Lease or otherwise applicable to or binding upon the Premises; (ii) for any unlawful purposes or in any unlawful manner, (iii) which, in the reasonable judgment of Landlord shall in any way (a) impair the appearance or reputation of the Building; or (b) impair, interfere with or otherwise diminish the quality of any of the Building services or the proper and economic heating, cleaning, ventilating, air conditioning or other servicing of the Building; or Premises, or with the use or occupancy of any of the other areas of the Building, or occasion discomfort, inconvenience or annoyance, or injury or damage to any occupants of the Premises or other tenants or occupants of the Building; or (iv) which is inconsistent with the maintenance of the Building as an office building of the first class in the quality of its maintenance, use, or occupancy. Tenant shall not: (a) use the Premises for lodging, manufacturing or for any immoral or illegal purposes; (b) use the Premises to engage in the manufacture or sale of, or permit the use of spirituous, fermented, intoxicating or alcoholic beverages on the Premises; (c) use the Premises to engage in the manufacture or sale of or permit the use of, any illegal drugs on the Premises. Tenant shall not install or use any electrical or other equipment of any kind which, in the reasonable judgment of Landlord, might cause any such impairment, interference, discomfort, inconvenience, annoyance or injury. 5.3. LICENSES AND PERMITS. Notwithstanding any permitted use inserted in Article 5.1, Tenant shall not use the Premises for any purpose which would violate the Building's certificate of occupancy, any conditional use permit or variance applicable to the Building or violate any covenants, conditions or other restrictions applicable to the Building, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the Term or any part of the Term hereof, relating in any manner to the Premises and the occupation and use by Tenant of the Premises. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business, and if the failure to secure such license or permit would in any way affect Landlord, the Premises, the Building or Tenant's ability -3- to perform any of its obligations under this Lease, Tenant, at Tenant's expense, shall duly procure and thereafter maintain such license and submit the same to inspection by Landlord. Tenant, at Tenant's expense, shall at all times comply with the terms and conditions of each such license or permit. Tenant shall furnish all data and information to governmental authorities and Landlord as required in accordance with legal, regulatory, licensing or other similar requirements as they relate to Tenant's use or occupancy of the Premises or the Building. 5.4. CONDITION OF PREMISES. Except as otherwise provided in this Lease including without limitation Landlord's obligation to complete Landlord's Work, Tenant hereby accepts the Premises and the Building in their condition existing as of the date this Lease is executed by Landlord and Tenant. Tenant acknowledges that it has satisfied itself by its own independent investigation that the Premises and the Building are suitable for its intended use, and that neither Landlord nor Landlord's agents has made any representation or warranty as to the present or future suitability of the Premises, or the Building for the conduct of Tenant's business. 6. RENT During the term of this Lease, the Yearly Rent and other charges, at the rate stated in the Lease Summary Sheet, shall be payable by Tenant to Landlord by monthly payments, at Landlord's address as stated in the Lease Summary Sheet, in advance and without demand on the first day of each month for and in respect of such month. The rent and other charges reserved and covenanted to be paid under this Lease shall commence on the Term Commencement Date. Notwithstanding the provisions of the next preceding sentence, Tenant shall pay the first monthly installment of rent on the execution of this Lease. If, by reason of any provisions of this Lease, the rent reserved hereunder shall commence or terminate on any day other than the first day of a calendar month, the rent for such calendar month shall be prorated. The rent shall be payable to Landlord or, if Landlord shall so direct in writing, to Landlord's agent or nominee, in lawful money of the United States which shall be legal tender for payment of all debts and dues, public and private, at the time of payment, at the office of the Landlord or such place as Landlord may designate, and the rent and other charges in all circumstances shall be payable without any setoff or deduction whatsoever. Rental and any other sums due hereunder not paid within five (5) days after the date due shall bear interest for each month or fraction thereof from the due date until paid computed at the annual rate of eighteen (18) percentage points, or at any applicable lesser maximum legally permissible rate for debts of this nature. 7. RENTABLE AREA The Total Rentable Area of the Premises and the Building shall be deemed to be as set forth in the Lease Summary Sheet. 8. SERVICES FURNISHED BY LANDLORD 8.1. BUILDING SERVICES. The Building shall be open to the public Mondays through Fridays, from 8:00 a.m. to 6:00 p.m., excepting legal holidays. Tenant shall have keycard access to the Building and the Premises twenty-four hours a day, seven days a week. 8.2. WATER. Landlord shall furnish hot and cold water for ordinary purposes, cleaning, toilet, lavatory and drinking purposes. If Tenant requires, uses or consumes water for any purpose other than for the aforementioned purposes, Landlord may after advance written notice to Tenant (i) assess a reasonable charge for the additional water so used or consumed by Tenant or (ii) install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant agrees to pay for water consumed, as shown on said meter, together with the sewer charge based on said meter charges, as and when bills are rendered, and on default in making such payment Landlord may pay such charges and collect the same from Tenant. All piping and other equipment and facilities for use of water outside the building core will be installed and maintained by Landlord at Tenant's sole cost and expense 8.3. ELEVATORS AND CLEANING. Landlord at its expense shall: (i) provide necessary elevator facilities (which may be manually or automatically operated, either or both, as Landlord may from time to time elect) on Mondays through Fridays, excepting on nationally recognized holidays, from 8:00 a.m. to 6:00 p.m., excepting nationally recognized holidays (called "business days") and have one elevator in operation available for Tenant's use, non-exclusively, together with others having business in the Building, at all other times; and (ii) cause the office areas of the Premises to be cleaned on business days (except on Saturdays) provided the same are kept in order by Tenant. Either Exhibit 3 (if annexed hereto) or, otherwise, the cleaning standards generally prevailing in first-class office buildings in the city or town where the Building is located, shall represent substantially the extent and scope of the cleaning by Landlord referred to in this Article 8.3. 8.4. INTENTIONALLY DELETED 8.5. ADDITIONAL CLEANING SERVICES. Tenant will pay to Landlord a reasonable charge (i) for any additional cleaning service required by Tenant, (ii) for any extra cleaning of the Premises required because of the carelessness or indifference of Tenant or because of the nature of Tenant's business, and (iii) for any cleaning done at the request of Tenant of any portions of the Premises which may be used for storage, shipping room or other non-office purposes. If the cost to Landlord for cleaning the Premises shall be increased due to the installation in the Premises, at Tenant's request, of any materials or finish other than those which are building standard, Tenant shall pay to Landlord an amount equal to such increase in cost. Tenant shall pay all after hours additional heat, cleaning or air conditioning service charges to Landlord within five (5) days after Landlord bills Tenant for said charges. 8.6. ADDITIONAL AIR CONDITIONING EQUIPMENT. In the event Tenant requires additional air conditioning for business machines, meeting rooms or other special purposes, or because of occupancy or excess electrical loads, any additional air conditioning units, chillers, condensers, compressors, ducts, piping and other equipment, such additional air conditioning equipment will be installed and maintained by Landlord at Tenant's sole cost and expense, but only if, in Landlord's reasonable judgment, the same will not cause damage or injury to the Building or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants; and Tenant shall reimburse Landlord in such an amount as will compensate it for the cost incurred by it in operating such additional air conditioning equipment. -4- 8.7. REPAIRS AND MAINTENANCE. Except as otherwise provided in Articles 18 and 20, and subject to Tenant's obligations in Article 14, Landlord shall keep and maintain all structural portions of the Building including without limitation the roof, exterior walls, structural floor slabs, columns, elevators, public stairways and corridors, lavatories, equipment (including, without limitation, sanitary, electrical, heating air conditioning, or other systems) and other common facilities of the Building in good condition and repair. Landlord shall also keep and maintain the driveways, parking lot and other common facilities located on the Land. 8.8. INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason of accident or emergency, or for repairs, alterations, replacements or improvements which in the reasonable judgment of Landlord are desirable or necessary to be made, or of difficulty or inability in securing supplies or labor, or of strikes, or of any other cause beyond the reasonable control of Landlord, whether such other cause be similar or dissimilar to those hereinabove specifically mentioned until said cause has been removed, Landlord reserves the right to interrupt, curtail, stop or suspend (i) the furnishing of heating, elevator, air conditioning, and cleaning services and (ii) the operation of the plumbing and electric systems. Landlord shall exercise reasonable diligence to eliminate the cause of any such interruption, curtailment, stoppage or suspension, but, except as set forth herein, there shall be no diminution or abatement of rent or other compensation due from Landlord to Tenant hereunder, nor shall this Lease be affected or any of the Tenant's obligations hereunder reduced, and the Landlord shall have no responsibility or liability for any such interruption, curtailment, stoppage, or suspension of services or systems. To the extent such interruption, curtailment, stoppage or suspension of services or systems causes a cessation of Tenant's business operations for a period of more than thirty (30) days or unreasonably and materially interferes with Tenant's business operations on the Premises for a period of more than thirty (30) days, then Tenant's Yearly rent shall be equitably abated for the time beyond thirty (30) days after such conditions exist. 8.9. ENERGY CONSERVATION. Notwithstanding anything to the contrary in this Article 8 or in this Lease contained, Landlord may institute, and Tenant shall comply with, such policies, programs and measures as may be necessary, required, or expedient for the conservation and/or preservation of energy or energy services, or as may be necessary or required to comply with applicable codes, rules regulations or standards provided that Tenant is given written notice of and copies of said policies, programs, and measures. 8.10. MISCELLANEOUS. All services provided by Landlord to Tenant are based upon an assumed maximum premises population of one person per two hundred (200) square feet of Total Rentable Area, which limit Tenant shall in no event exceed. 9. ESCALATION 9.1. Definitions. As used in this Article 9, the words and terms which follow mean and include the following: (a) "Base Operating Expense Account" shall mean the Operating Costs for the Operating Costs Base Year. (b) "Operating Year" shall mean a calendar year in which occurs any part of the term of this Lease. (c) "Tenant's Proportionate Share" shall be the percentage as stated in the Lease Summary Sheet, which percentage has been determined by dividing the number of rentable square feet in the Premises by the total number of rentable square feet in the Building and multiplying the resulting quotient by one hundred (100). (d) "Taxes" shall mean the real estate taxes and other taxes, levies and assessments imposed upon the Building and the land on which it stands and upon any personal property of Landlord used in the operation thereof, or Landlord's interest in the Building or such personal property; charges, fees and assessments for transit, housing, police, fire or other governmental services to the Building, service or user payments in lieu of taxes; and any and all other taxes, levies, betterments, assessments and charges arising from the ownership, leasing, operating, use or occupancy of the Building or based upon rentals derived therefrom, which are or shall be imposed by National, State, Municipal or other authorities. As of the Execution Date, Taxes shall not include any franchise, rental, income or profit tax, capital levy or excise, provided, however, that any of the same and any other tax, excise, fee, levy, charge or assessment, however described, that may in the future be levied or assessed as a substitute for or an addition to, in whole or in part, any tax, levy or assessment which would otherwise constitute Taxes, whether or not now customary or in the contemplation of the parties on the Execution Date of this Lease, shall constitute Taxes, but only to the extent calculated as if the Building and the land upon which it stands is the only real estate owned by Landlord. Taxes shall also include Landlord's reasonable out-of-pocket expenses of tax abatement or other proceedings contesting assessments or levies. (e) "Tax Period" shall be any fiscal/tax period in respect of which Taxes are due and payable to the appropriate governmental taxing authority, any portion of which period occurs during the term of this Lease, the first such Period being the one in which the Term Commencement Date occurs. (f) "Operating Costs": (1) Definition of Operating Costs. "Operating Costs" shall mean all costs incurred and expenditures of whatever nature made by Landlord in the operation and management for repair and replacements, cleaning and maintenance of the Building and grounds located on the Land including, without limitation, vehicular and pedestrian passageways appurtenant to the Building, related equipment, facilities and appurtenances, elevators, cooling and heating equipment (which cooling and heating costs shall relate solely to the Common Areas). In the event that Landlord or Landlord's managers or agents perform services for the benefit of the Building off-site which would otherwise be performed on-site (e.g., accounting), the cost of such services shall be reasonably allocated among the properties benefiting from such service and shall be included in Operating Costs. The Building's pro rata share (as reasonably determined by Landlord) of the cost of operating, managing (including, without limitation, the cost of the management office), maintaining and cleaning (including, without limitation, snow and ice removal) the common areas shall be included in Operating Costs. Operating Costs shall include, without limitation, those categories of Specifically Included Operating Costs, as set forth below, but shall not include "Excluded Costs," as hereinafter defined. (2) Definition of Excluded Costs. "Excluded Costs" shall be defined as the cost of electric energy purchased for the Premises by Tenant under Article 14.3 hereof, mortgage charges (meaning principal and interest changes on any financing relating to the Land or the Building), brokerage commissions, salaries of executives and owners not directly employed in the management/operation of the -5- Building, the cost of work done by Landlord for a particular tenant for which Landlord has the right to be reimbursed by such Tenant, and, subject to Subparagraph (3) below, such portion of expenditures as are not properly chargeable against income. Furthermore, the following items shall be included in Excluded Costs: (i) costs, expenses and fees relating to solicitation of, advertising for and entering into leases and other occupancy arrangements for space in the Building, including but not limited to legal fees, space planners' fees, real estate brokers' leasing commissions and advertising expenses; (ii) costs of correcting defects in the Building or the Building equipment or replacing defective equipment to the extent such costs may relate to items covered by warranties of manufacturers, suppliers or contractors or are otherwise borne by parties other than Landlord; (iii) costs of installations paid by or constructed for specific tenants or other occupants; (iv) any bad debt loss, rent loss or reserves for bad debts or rent loss; (v) costs, expenses or judgments occasioned by casualty, injury or damage, to the extent that such costs, expenses or judgments are covered by insurance to be maintained by Landlord under this Lease, provided that all such costs, expenses or judgments not covered under such insurance as a result of any deductible amount shall be included in Operating Costs and costs for which Landlord is reimbursed by any tenant's (including, without limitation, Tenant's) insurance carrier; (vi) expenses relating to third-party landlord-tenant disputes in the Building; (vii) costs of the original construction of the Building or of any major addition to, deletion from or modification of the Building or any common facilities located on the Land, including but not limited to the addition or deletion of floors, and any other costs of a capital nature, as determined in accordance with generally acceptable accounting principles, consistently applied; provided, however, that the amortization of such costs; as hereinabove provided, shall be permitted to the extent that such costs are incurred as a result of (i) the replacement of any major system or component of the Building reasonably made by Landlord in lieu of the repair thereof, (ii) any improvement reasonably made by Landlord for the purpose of reducing Operating Costs and (iii) any improvement that Landlord is required to make to comply with any law or regulation applicable to the Building enacted after the date of this Lease. (3) Specifically Included Categories of Operating Costs. Operating Costs shall include, but not be limited to, the following: Taxes (other than real estate taxes): Sales, Federal Social Security, Unemployment and Old Age Taxes and contributions and State Unemployment taxes and contributions accruing to and paid by the Landlord on account of all employees of Landlord and/or Landlord's managing agent, who are employed or on account of the Building, except that taxes levied upon the net income of the Landlord and taxes withheld from employees, and "Taxes" as defined in Article 9.1(d) shall not be included herein. Water: All charges and rates connected with water supplied to the Building and related sewer use charges, but not including the cost of water which is paid for directly to the utility by the user/tenant in the Building. Heat and Air Conditioning: All charges connected with heat and air conditioning supplied to the Building, except for charges incurred by Tenant pursuant to Section 8.5(b) hereof, or by other tenants of the Building pursuant to similar provisions in their leases. Wages: Wages and cost of all employee benefits of all employees of the Landlord and/or Landlord's managing agent who are employed in, about or on account of the Building. Cleaning: The cost of labor and material for cleaning the Building, surrounding areaways located on the Land and windows in the Building. Elevator Maintenance: All expenses for or on account of the upkeep and maintenance of all elevators in the Building. Electricity: The cost of all electric current for the operation of any machine, appliance or device used for the operation of the Premises and the Building, including the cost of electric current for the elevators, lights, air conditioning and heating, but not including electric current which is paid for directly to the utility by the user/tenant in the Building. (If and so long as Tenant is billed directly by the electric utility for its own consumption as determined by its separate meter, then Operating Costs shall include only Building and public area electric current consumption and not any demised premises electric current consumption. Wherever separate metering is unlawful, prohibited by utility company regulation or tariff or is otherwise impracticable, relevant consumption figures for the purposes of this Article 9 shall be determined by fair and reasonable allocations and engineering estimates made by Landlord. Insurance, etc.: Fire, casualty, liability and such other insurance as may from time to time be maintained by Landlord or may be required by lending institutions on first-class office buildings in the city or town wherein the Building is located and all other reasonable expenses customarily incurred in connection with the operation and maintenance of first-class office buildings in the city or town wherein the Building is located including, without limitation, a management fee not to exceed five percent (5%) payable by Landlord and rental costs associated with the Building's management office. -6- 9.2. Expense Stop. Tenant shall pay to Landlord Tenant's Proportionate Share of Operating Costs and Taxes which are in excess of the Base Operating Expense Account and the Tax Expenses Base Year, which amounts shall be due within fifteen (15) days after being billed by Landlord. At Landlord's option, however, Landlord may, from time to time, provide Tenant with an estimate of the expected Operating Costs and Taxes for the coming Operating Year, and an estimate of Tenant's additional rent for such Operating Costs and Taxes, and said additional rent shall be payable by Tenant monthly during each Operating Year of the term of the Lease at the time and in the manner for payment of Monthly Rent. In the event that Tenant pays Landlord's estimate of Tenant's Proportionate Share of Operating Costs and Taxes, Landlord shall use its best efforts to deliver to Tenant within one hundred fifty (150) days after the expiration of each Operating Year a reasonably detailed statement showing Tenant's Proportionate Share of the actual Operating Costs and Expenses incurred during such year. Landlord's failure to deliver the statement to Tenant within said period shall not constitute Landlord's waiver of its right to collect said amounts or otherwise prejudice Landlord's rights hereunder. If Tenant's payments under this Article 9.2 during said Operating Year exceed Tenant's Proportionate Share as indicated on said statement. Tenant shall be entitled to credit the amount of such overpayment against Tenant's Proportionate Share next falling due. If Tenant's payments under this Article 9.2 during said Operating Year were less than Tenant's Proportionate Share as indicated on said statement, Tenant shall pay to Landlord the amount of the deficiency to Landlord when billed therefor. Landlord and Tenant shall forthwith adjust between them by cash payment any balance determined to exist with respect to that portion of the last Operating Year for which Tenant is responsible for Operating Costs and Taxes, notwithstanding that the Lease may have terminated before the end of such Operating Year; and this provision shall survive the expiration or earlier termination of the Lease. Appropriate credit against Tenant's Proportionate Share of Operating Costs and Taxes shall be given for any refund obtained by reason of a reduction in any Taxes by the assessors or the administrative, judicial or other governmental agency responsible therefor. The original computations, as well as reimbursement or payments of additional charges, if any, or allowances, if any, under the provisions of this Article 9.2 shall be based on the original assessed valuations with adjustments to be made at a later date when the tax refund, if any, shall be paid to Landlord by the taxing authorities. Expenditures for legal fees and for other similar or dissimilar expenses incurred in obtaining the tax refund may be charged against the tax refund before the adjustments are made for the Tax Period. 9.3. Part Years. If the Term Commencement Date or the Termination Date occurs in the middle of an Operating Year, Tenant shall be liable for only that portion of the Operating Costs and Taxes in respect of such Operating Year represented by a fraction the numerator of which is the number of days of the herein Term which falls within the Operating Year and the denominator of which is three hundred sixty-five (365). 9.4. Disputes, etc. Any disputes arising under this Article 9 may, at the election of either party, be submitted to arbitration as hereinafter provided. Any obligations under this Article 9 which shall not have been paid at the expiration or sooner termination of the term of this Lease shall survive such expiration and shall be paid when and as the amount of same shall be determined to be due in accordance with the relevant provisions of this Lease. 9.5 Tenant's Right to Audit. Tenant shall have the right to examine, copy and audit Landlord's books and records establishing Operating Costs for any Operating Year for a period of ninety (90) days following the date that Tenant receives the statement of Operating Costs for such Operating Year from Landlord. Tenant shall give Landlord not less than thirty (30) days' prior notice of its intention to examine and audit such books and records, and such examination and audit shall take place at such place as Landlord routinely maintains such books and records, unless Landlord elects to have such examination and audit take place in another location designated by Landlord in the city and state in which the Property is located. Tenant's review shall be conducted solely by an auditor or accountant of a nationally recognized auditing or accounting firm and not by any party compensated by Tenant on a contingency fee arrangement. All costs of the examination and audit shall be borne by Tenant; provided, however, that if such examination and audit establishes that the actual Operating Costs for the Operating Year in question are less than the amount set forth as the annual Operating Costs on the annual statement delivered to Tenant by at least ten percent (10%), then Landlord shall pay the reasonable costs of such examination and audit. If, pursuant to the audit, the payments made for such Operating Year by Tenant exceed Tenant's required payment on account thereof for such Operating Year, Landlord shall credit the amount of overpayment against subsequent obligations of Tenant with respect to Operating Costs (or promptly refund such overpayment if the Term of this Lease has ended and Tenant has no further obligation to Landlord); but, if the payments made by Tenant for such Operating Year are less than Tenant's required payment as established by the examination and audit, Tenant shall pay the deficiency to Landlord within thirty (30) days after conclusion of the examination and audit, and the obligation to make such payment for any period within the Term shall survive expiration of the Term. If Tenant does not elect to exercise its right to examine and audit Landlord's books and records for any Operating Year within the time period provided for by this paragraph, Tenant shall have no further right to challenge Landlord's statement of Operating Costs. 10. CHANGES OR ALTERATIONS BY LANDLORD Landlord reserves the right, exercisable by itself or its nominee, at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to (i) the Building (including the Premises) and the fixtures and equipment thereof, (ii) the street entrances, halls, passages, elevators, escalators, and stairways of the Building, as it may deem necessary or desirable, and (iii) the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other public parts of the Building, or (iv) the common areas of the Building, provided, however, that: (a) there shall be no unreasonable obstruction of the right of access to, or unreasonable interference with the use and enjoyment of the Premises by Tenant, and (b) except in the case of an emergency, Landlord shall notify Tenant in writing of its intention to make such changes, alterations, additions, improvements, repairs or replacements. Nothing contained in this Article 10 shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any governmental or other authority. Landlord reserves the right to adopt and at any time and from time to time to change the name or address of the Building. Neither this Lease nor any use by Tenant shall give Tenant any right or easement for the use of any door or any passage or any concourse connecting with any other building or to any public convenience, and the use of such doors, passages and concourses and of such conveniences may be regulated or discontinued at any time and from time to time by Landlord without notice to Tenant and without affecting the obligation of Tenant hereunder or incurring any liability to Tenant therefor, provided, however, that there be no unreasonable obstruction of the right of access to, or unreasonable interference with the use of the Premises by Tenant. 11. FIXTURES, EQUIPMENT AND IMPROVEMENTS-REMOVAL BY TENANT All fixtures, equipment, improvements and appurtenances attached to or built into the Premises prior to or during the term, whether by Landlord at its expense or at the expense of Tenant (either or both) or by Tenant shall be and remain part of the Premises and shall not be removed by Tenant during or at the end of the term unless Landlord otherwise elects to require Tenant to remove such fixtures, equipment improvements and appurtenances, in accordance with Articles 12 and/or -7- 22 of the Lease or unless Tenant requests and receives Landlord's written consent to remove any such items. All electric telephone, telegraph, communication, radio, plumbing, heating and sprinkling systems, fixtures and outlets, vaults, paneling, molding, shelving, radiator, enclosures, cork, rubber, linoleum and composition floors, ventilating, silencing, air conditioning and cooling equipment, shall be deemed to be included in such fixtures, equipment, improvements and appurtenances, whether or not attached to or built into the Premises. 12. ALTERATIONS AND IMPROVEMENTS BY TENANT Tenant shall make no alterations, installations, removals, additions or improvements in or to the Premises or the Building (hereinafter collectively referred to as "Alterations") without Landlord's prior written consent and then only those made by contractors or mechanics approved by Landlord. No installations or work shall be undertaken or begun by Tenant until: (i) Landlord has approved written plans and specifications, which are sufficiently detailed to obtain a building permit, and a time schedule for such work; (ii) Tenant has made provision for either written waivers of liens from all contractors, laborers and suppliers of materials for such installations or work, the filing of lien bonds on behalf of such contractors, laborers and suppliers, or other appropriate protective measures approved by Landlord; and (iii) Tenant has procured appropriate surety payment and performance bonds. No amendments or additions to such plans and specifications shall be made without the prior written consent of Landlord. Landlord's approval is solely given for the benefit of Landlord and neither Tenant nor any third party shall have the right to rely upon Landlord's approval of Tenant's plans for any purpose whatsoever. Without limiting the foregoing, Tenant shall be responsible for all elements of the design of Tenant's plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the Premises and the placement of Tenant's furniture, appliances and equipment), and Landlord's approval of Tenant's plans shall in no event relive Tenant of the responsibility for such design. Landlord shall have no liability or responsibility for any claim, injury or damage alleged to have been caused by the particular materials, whether building standard or non-building standard, appliances or equipment selected by Tenant in connection with any work performed by or on behalf of Tenant in the Premises including, without limitation, furniture, carpeting, copiers, laser printers, computers and refrigerators. Any such Alterations shall be done at Tenant's sole expense, except to the extent such work is included in the Tenant Improvement Work as defined in Article 4 hereof, and at such times and in such manner as Landlord may from time to time designate. If Tenant shall make any Alterations as provided above then Landlord may elect to require the Tenant at the expiration or sooner termination of the term of this Lease to restore the Premises to substantially the same condition as existed at the Term Commencement Date. Should Tenant make any Alterations without the prior approval of Landlord, or use a contractor not expressly approved by Landlord, Landlord may, at any time during the term of this Lease, require that Tenant remove all or part of the alterations and return the Premises to the condition it was in prior to the making of the Alterations. Notwithstanding the foregoing, Tenant shall have the right to make interior non-structural alterations (not in excess of $20,000.00 in the aggregate) and to install decorative items on the interior of the Premises without Landlord's approval. 13. TENANT'S CONTRACTORS-MECHANICS' AND OTHER LIENS-STANDARD OF TENANT'S PERFORMANCE-COMPLIANCE WITH LAWS Whenever Tenant shall make any alterations, decorations, installations, removals, additions or improvements (which alterations, decorations, installations, removals, additions or improvements shall be made in accordance with the terms of this Lease) in or to the Premises, whether such work be done prior to or after the Term Commencement Date, Tenant will strictly observe the following covenants and agreements: (a) Tenant agrees that it will not, either directly or indirectly, use any contracts and/or materials if their use will create any difficulty, whether in the nature of a labor dispute or otherwise, with other contractors and/or labor engaged by Tenant or Landlord or others in the construction, maintenance and/or operation of the Building or any part thereof. (b) In no event shall any material or equipment be incorporated in or added to the Premises, so as to become a fixture or otherwise a part of the Building, in connection with any such alteration, decoration, installation, addition or improvement which is subject to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is subject to any security interest of any form of title retention agreement. No installations or work shall be undertaken or begun by Tenant until (i) Tenant has made provision for written waiver of liens from all contractors, laborers and suppliers of materials for such installations or work, and taken other appropriate protective measures approved by Landlord; and (ii) Tenant has procured appropriate surety payment and performance bonds which shall name Landlord as additional obligee and has filed lien bond(s) (in jurisdictions where available) on behalf of such contractors, laborers and suppliers. Any mechanic's lien filed against the Premises or the Building for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant within ten (10) days thereafter, at Tenant's expense by filing the bond required by law or otherwise. If Tenant fails so to discharge any lien, Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for any expense or cost incurred by Landlord in so doing within fifteen (15) days after rendition of a bill therefor. (c) All installations or work done by Tenant shall be at its own expense, except for Landlord's Contribution as set forth in Exhibit 6, and shall at all times comply with (i) laws, rules, orders and regulations of governmental authorities having jurisdiction thereof, (ii) orders, rules and regulations of any Board of Fire Underwriters, or any other hereafter constituted exercising similar functions, and governing insurance rating bureaus; (iii) Rules Regulations of Landlord; and (iv) plans and specifications prepared by and at the expense of Tenant theretofore submitted to and approved by Landlord. (d) Tenant shall procure all necessary permits before undertaking any work in Premises; do all of such work in a good and workmanlike manner, employing materials of good quality and complying with all governmental requirements; and defend, save, hold harmless, exonerate and indemnify Landlord from all injury, loss or damage to any person or property occasioned by or growing out of such work. Tenant shall cause contractors employed by Tenant to carry Worker's Compensation Insurance in accordance with statutory requirements, Automobile Liability Insurance and, naming Landlord as an additional insured, Commercial General Liability Insurance covering such contractors on or about the Premises in the amounts stated in Article 15 hereof or in such other reasonable amounts as Landlord shall require and to submit certificates evidencing such coverage to Landlord prior to the commencement of such work. (e) Tenant shall give Landlord not less than ten (10) days' advance written notice prior to the commencement of any work in the Premises by Tenant, and Landlord shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. 14. REPAIRS BY TENANT-FLOOR LOAD 14.1 Repairs by Tenant. Tenant shall keep all and singular the Premises neat and clean (including periodic rug shampoo and waxing of tiled floors and cleaning of blinds and drapes) and in such repair, order and condition as the same are in on the Term Commencement Date or may be put in during the term hereof, reasonable use and wearing thereof and -8- damage by fire or by other casualty excepted. Tenant shall be solely responsible for the proper maintenance of all equipment and appliances operated by Tenant, including, without limitation, copiers, laser printers, computers and refrigerators. Tenant shall make, as and when needed as a result of misuse by, or neglect or improper conduct of, Tenant or Tenant's servants, employees, agents, contractors, invitees, or licensees or otherwise, all repairs in and about the Premises necessary to preserve them in such repair, order and condition, which repairs shall be in quality and class equal to the original work. After notice to Tenant, Landlord may elect at the expense of Tenant, to make any such repairs or to repair any damage or injury to the Building or the Premises caused by moving property of Tenant in or out of the Building, or by installation or removal of furniture or other property, or by misuse by, or neglect, or improper conduct of, Tenant or Tenant's servants, employees, agents, contractors, or licensees. 14.2. FLOOR LOAD-HEAVY MACHINERY. Tenant shall not place a load upon any floor of the Premises exceeding the floor load per square foot of area which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all business machines and mechanical equipment, including safes, which shall be placed so as to distribute the weight. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky matter, or fixtures into or out of the Building without Landlord's prior written consent. If such safe, machinery, equipment freight, bulky matter or fixtures requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do said work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant and Tenant will defend, indemnify and save and hold Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. Proper placement of all such business machines, etc., in the Premises shall be Tenant's responsibility. Tenant shall not add or reconfigure a load upon any floor of the Premises which may impose additional weight on the floor load of the Premises without Landlord's prior written consent which shall not be unreasonably withheld or delayed. Tenant shall submit a plan of the new addition or reconfiguration which shall be reviewed by Landlord and, if necessary, by Landlord's structural engineer. Any such addition or reconfiguration of the floor load of the Premises shall be at Tenant's sole cost. 14.3. ELECTRIC CURRENT. Tenant shall purchase all electrical energy that Tenant requires for operation of the lighting fixtures, appliances and equipment used in or by the Premises and for the furnishing of heat and air conditioning to the Premises. The Premises shall be separately metered and billed directly for the supply of such electrical energy. The costs of initially installing any required meter and all costs for the maintenance thereof shall be paid by Tenant. All charges for electricity shall be paid when due to the public utility providing such electricity. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character of electrical energy furnished to the Premises by reason of any requirement, act or omission of the public utility serving the Building with electricity unless due to the act or omission of Landlord. Tenant's use of electrical energy in the Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise presently serving the Premises. Any additional feeders or risers to supply Tenant's electrical requirements in addition to those originally installed and all other equipment proper and necessary in connection with such feeders or risers, shall be installed by Landlord upon Tenant's request, at the sole cost and expense of Tenant, provided that such additional feeders and risers are permissible under applicable laws and insurance regulations and that the installation of such feeders or risers shall not cause permanent damage or injury to the Building or cause or create a dangerous condition or unreasonably interfere with other tenants of the Building. Tenant agrees that it will not make any material alteration or material addition to the electrical equipment and/or appliances in the Premises without the prior written consent of Landlord in each instance first obtained, which consent will not be unreasonably withheld, and will promptly advise Landlord of any other alteration or addition to such electrical equipment and/or appliances. 15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION 15.1. INSURANCE - TENANT. (a) GENERAL LIABILITY INSURANCE. Tenant shall procure, and keep in force and pay for Commercial General Liability Insurance insuring Tenant on an occurrence basis against all claims and demands for personal injury liability (including, without limitation, bodily injury, sickness, disease, and death) or damage to property which may be claimed to have occurred from and after the time Tenant and/or its contractors enter the Premises in accordance with Article 4 of this Lease, of not less than Two Million ($2,000,000) Dollars in the event of personal injury to any number of persons or damage to property, arising out of any one occurrence, and from time to time thereafter shall be not less than such higher amounts, if procurable, as may be reasonably required by Landlord and are customarily carried by responsible similar tenants in the City or Town wherein the Building is located. If appropriate to Tenant's operation, and at Landlord's sole discretion, Tenant, at its own expense, shall obtain and keep in force during the Term of this Lease pollution liability coverage with coverages and limits as Landlord may reasonably require, provided that Landlord may from time to time require an increase in such limits. (b) UMBRELLA LIABILITY. Tenant, at its own expense, shall obtain and keep in force during the term of this Lease a policy or policies providing umbrella liability coverage, with terms following the form of the commercial general liability insurance described in Article 15.1(a) above. Such insurance shall be on an occurrence basis, providing limits of not less than $4,000,000.00 per occurrence, in excess of the primary $1,000,000.00 required in Article 15.1(a), so that combined liability limits provided by the commercial general liability policy and this umbrella policy total not less than $5,000,000.00 per occurrence. Should circumstances arise in which the insurer is to be notified of circumstances that may lead to any claim against this policy or policies, Landlord shall be concurrently notified of details of such claim, and shall be provided subsequent information as to how such claims affect the liability limits available for future claims. (c) PROPERTY INSURANCE. Tenant, at its own expense, shall obtain and keep in force during the Term of this Lease "All Risk" property insurance, with coverages acceptable to Landlord, in Landlord's sole discretion. Said insurance shall be written on a one hundred percent (100%) replacement cost, Agreed Amount basis, on Tenant's personal property, all tenant improvements installed at Premises by Landlord or Tenant, Tenant's trade fixtures and other property. If this Lease is terminated as a result of a casualty in accordance with Article 18, the proceeds of said insurance attributable to the replacement of all tenant improvements at the Premises to be paid to the Landlord. (d) WORKER'S COMPENSATION/EMPLOYER'S LIABILITY INSURANCE. Tenant, at its own expense, shall obtain and keep in force during the term of this Lease, worker's compensation insurance as required by applicable law. Employer's liability coverage with per occurrence limits not less than $500,000.00 shall be maintained concurrently with the worker's compensation policy, and this coverage shall be scheduled on the umbrella liability policy required in Article 15.1(b) above. -9- 15.2. Certificates of Insurance. Such insurance shall be effected with insurance companies approved by Landlord, authorized to do business in the state wherein the Building is situated, under valid and enforceable policies wherein Tenant names Landlord, and at Landlord's option, the holder of any mortgage or deed of trust encumbering the Building and any person or entity managing the Building on behalf of the Landlord, as additional insureds. Said insurance companies shall maintain during the policy term a rating of not less than "A" or better under Standard & Poor's claims paying ability rating. All insurance obtained by Tenant shall be primary to, and not contributory with any similar insurance carried by the Landlord, whose insurance shall be considered excess insurance only. Such insurance shall provide that it shall not be canceled or modified without at least thirty (30) days' prior written notice to each insured named therein. Tenant's insurance policies shall not include any deductible or self-insured retentions in excess of $5,000.00 without specific approval of the Landlord. Within fifteen (15) days prior to the Term Commencement Date of this Lease and on or before the time Tenant's contractors enter the Premises in accordance with Articles 14 of this Lease and thereafter not less than fifteen (15) days prior to the expiration date of each expiring policy, original copies of the policies provided for in Article 15.1 issued by the respective insurers, or certificates of such policies setting forth in full the provisions thereof and issued by such insurers together with evidence satisfactory to Landlord of the payment of all premiums for such policies, shall be delivered by Tenant to Landlord and certificates as aforesaid of such policies shall upon request of Landlord, be delivered by Tenant to the holder of any provided for in Article 15.1 issued by the respective insurers, or certificates of such policies setting forth in full the provisions thereof and issued by such insurers together with evidence satisfactory to Landlord of the payment of all premiums for such policies, shall be delivered by Tenant to Landlord and certificates as aforesaid of such policies shall upon request of Landlord, be delivered by Tenant to the holder of any mortgage affecting the Premises. 15.3. General. Tenant will save Landlord, its agents and employees, harmless and will exonerate, defend and indemnify Landlord, its agents and employees, from and against any and all claims, liabilities, penalties, and/or expenses (including reasonable attorneys' fees) asserted by or on behalf of any person, firm, corporation or public authority arising from the Tenant's breach of the Lease or: (a) On account of or based upon any injury to person, or loss of or damage to property, sustained or occurring on the Premises on account of or based upon the act, omission, fault, negligence or misconduct of any person whomsoever (except to the extent the same is caused by Landlord, its agents, contractors or employees); (b) On account of or based upon any injury to person, or loss of or damage to property, sustained or occurring elsewhere (other than on the Premises) in or about the Building (and, particular, without limiting the generality of the foregoing, on or about the elevators, stairways, public corridors, sidewalks, concourses, arcades, malls, galleries, vehicular tunnels, approaches, areaways, or other appurtenances and facilities used in connection with the Building or Premises) arising out of use or occupancy of the Building or Premises by the Tenant, or by any person claiming by, through or under Tenant, or on account of or based upon the act, omission, fault, negligence or misconduct of Tenant, its agents, employees or contractors; and (c) On account of or based upon (including monies due on account of) any work thing whatsoever done (other than by Landlord or its contractors, or agents or employees of either) on Premises during the term of this Lease and during the period of time, if any, prior to the Term Commencement Date that Tenant may have been given access to the Premises. (d) Tenant's obligations under this Article 15.3 shall be insured either under the Commercial General Liability Insurance required under Article 15.1, above, or by a contractual rider or other coverage; and certificates of insurance in respect thereof shall be provided by Tenant to Landlord upon request. 15.4. Property of Tenant. In addition to and not in limitation of the foregoing, Tenant covenants and agrees that, to the maximum extent permitted by law, all merchandise, furniture, and property of every kind, nature and description related or arising out of Tenant's leasehold estate hereunder, which may be in or upon the Premises or Building, in the public corridors, or on the sidewalks, areaways and approaches adjacent thereto, shall be at the sole risk and hazard of Tenant, and that if whole or any part thereof shall be damaged, destroyed, stolen or removed from any cause or reason whatsoever no part of said damage or loss shall be charged to, or borne by, Landlord. 15.5. Bursting of Pipes, etc. Except to the extent of insurance provided under Landlord's liability insurance policy, Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, air contaminants or emissions, electricity, electrical or electronic emanations or disturbance, water, rain or snow or leaks from any part the Building or from the pipes, appliances, equipment or plumbing works or from the roof, street or sub-surface or from any other place or caused by dampness, vandalism, malicious mischief or by any other cause of whatever nature, unless caused by or due to the negligence or willful misconduct of Landlord, its agents, servants or employees, and then only after (i) notice to Landlord of the condition claimed to constitute negligence and (ii) the expiration of a reasonable time after such notice has been received by Landlord without Landlord having taken all reasonable and practicable means to cure or correct such condition; and pending such cure or correction by Landlord, Tenant shall take all reasonably prudent temporary measures and safeguards to prevent any injury, loss or damage to persons or property. In no event shall Landlord be liable for any loss, the risk of which is covered by Tenant's insurance or is required to be so covered by this Lease; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public, or quasi-public work; nor shall Landlord be liable for any latent defect in the Premises or in the Building. 15.6. Repairs and Alterations -- No Diminution of Rental Value. Except as otherwise provided in Article 18, there shall be no allowance to Tenant for diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to Tenant arising from any repairs, alterations, additions, replacements or improvements made by Landlord, or any related work, Tenant or others in or to any portion of the Building or Premises or any property adjoining the Building, or in or to fixtures, appurtenances, or equipment thereof, or for failure of Landlord or others to make any repairs, alterations, additions or improvements in or to any portion of the Building, or of the Premises, or in or to the fixtures, appurtenances or equipment thereof. 15.7. Landlord's Insurance Requirements. Landlord shall keep (at Landlord's cost and expense) the Building insured against damage or destruction by fire and the perils commonly covered under an extended coverage endorsement in amounts customary for buildings of this type. 16. ASSIGNMENT, MORTGAGING AND SUBLETTING 16.1. Landlord's Consent Required. Tenant shall not voluntarily or by operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises (hereinafter collectively a "Transfer"), without Landlord's prior written consent which shall not be unreasonably -10- withheld, conditioned or delayed. Landlord shall respond to Tenant's written request for consent hereunder within thirty (30) days after Landlord's receipt of the written request from Tenant. Any attempted Transfer without such consent shall be void and shall constitute and Event of Default and breach of this Lease. Tenant's written request for Landlord's consent shall include, the Landlord's thirty (30) day response period referred to above shall not commence, unless and until Landlord has received from Tenant, all of the following information: (a) financial statements for the proposed assignee or subtenant for the past two (2) years prepared in accordance with generally accepted accounting principles, (b) federal tax returns for the proposed assignee or subtenant for the past two (2) years, if available, (c) a TRW credit report (if such information is available) or similar report on the proposed assignee or subtenant, (d) a detailed description of the business the assignee or subtenant intends to operate at the Premises, (e) the proposed effective date of the assignment or sublease, (f) a copy of the proposed sublease or assignment agreement which includes all of the terms and conditions of the proposed assignment or sublease, and (g) a detailed description of any ownership or commercial relationship between Tenant and the proposed assignee or subtenant. If the obligations of the proposed assignee or subtenant will be guaranteed by any person or entity, Tenant's written request shall not be considered complete until the information described in (a), (b) and (c) of the previous sentence has been provided with respect to each proposed guarantor. "Transfer" shall also include the transfer (a) if Tenant is a corporation, and Tenant's stock is not publicly traded over a recognized securities exchange, of more than fifty percent (50%) of the voting stock of such corporation during the Term of this Lease (whether or not in one or more transfers) or the dissolution or merger of the corporation, or (b) if Tenant is a partnership or other entity, of more than fifty percent (50%) of the profit and loss participation in such partnership or entity during the Term of this Lease (whether or not in one or more transfers) or the dissolution or liquidation of the partnership. Notwithstanding anything in Section 16 to the contrary, and provided that Tenant is not in default of this Lease, Tenant shall have the right, without Landlord's consent, upon ten (10) days' prior written notice to Landlord, together with sufficient documentation which verifies that all of the requirements set forth hereunder have been fulfilled and the conditions have been met, to enter into an assignment of this Lease or a sublease of the Premises to the parent corporation of Tenant, any wholly-owned subsidiary corporation of Tenant or Tenant's parent corporation, or to any corporation succeeding to substantially all of the assets of Tenant as a result of a consolidation or merger or to a corporation to which all or substantially all of the assets of Tenant have been sold, or to any Affiliate of Tenant, as defined below, or to a partnership, the majority interest in which shall be owned by the shareholders of Tenant or any Affiliate of Tenant (collectively, "Permitted Related Transfers") provided, that in each of the foregoing instances, such other entity shall (i) assume in writing all of Tenant's obligations hereunder and (ii) (other than the parent corporation of Tenant or a wholly-owned subsidiary corporation of Tenant, or Tenant's parent corporation or any Affiliate of Tenant) have a net worth immediately prior to such assignment or subletting equal to or greater than the net worth of Tenant as of the date immediately preceding such assignment or subletting (provided that such entity must satisfy such net worth test both immediately before and after the date of purchase of Tenant's voting capital stock). In addition, if an assignment is implemented by means of a transfer of all of Tenant's voting capital stock, the purchaser of such voting capital stock shall guarantee the performance by Tenant of all of the terms, covenants and conditions of this Lease and shall provide to Landlord, prior to the effective date of such purchase, an executed guaranty in the form required by Landlord. Within twenty (20) days after the effective date of any such assignment, Tenant shall provide Landlord with a copy of the fully executed and dated merger or consolidation documents. The term "Affiliate", as used herein shall mean any corporation, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with Tenant. The term "control," as used in the immediately preceding sentence, shall mean the right to exercise, directly or indirectly, of more than fifty percent (50%) of the voting rights attributable to the shares of the controlled corporation. Notwithstanding any such assignment or sublease, Tenant shall not be released from any and shall perform all obligations imposed on it hereunder. 16.2. Terms and Conditions. The following terms and conditions shall be applicable to any Transfer: (a) Regardless of Landlord's consent, no Transfer shall release Tenant from Tenant's obligations hereunder or alter the primary liability of Tenant to pay the rent and other sums due Landlord hereunder and to perform all other obligations to be performed by Tenant hereunder or release any guarantor from its obligations under its guaranty. (b) Landlord may accept rent from any person other than Tenant pending approval or disapproval of an assignment or subletting. (c) Neither a delay in the approval or disapproval of a Transfer, nor the acceptance of rent, shall constitute a waiver or estoppel of Landlord's right to exercise its rights and remedies for the breach of any of the terms or conditions of this Article 16.2. (d) The consent by Landlord to any Transfer shall not constitute a consent to any subsequent Transfer by Tenant or to any subsequent or successive Transfer by an assignee or subtenant. However, Landlord may consent to subsequent Transfers or any amendments or modifications thereto without notifying Tenant or anyone else liable on the Lease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease. (e) In the event of any default under this Lease, Landlord may proceed directly against Tenant, any guarantors or any one else responsible for the performance of this Lease, including any subtenant or assignee, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord. (f) Landlord's written consent to any Transfer by Tenant shall not constitute an acknowledgement that an no default then exists under this Lease nor shall such consent be deemed a waiver of any then existing default. (g) The discovery of the fact that any financial statement relied upon by Landlord in giving its consent to an assignment or subletting was materially false shall, at Landlord's election, render Landlord's consent null and void. (h) Landlord shall not be liable under this Lease or under any assignment or sublease to any assignee or subtenant. (i) No assignment or sublease may be modified or amended without Landlord's prior written consent. 16.3. Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Tenant hereby absolutely and unconditionally assigns and transfers to Landlord all of the Tenant's interest in all rentals and income arising from any sublease entered into by Tenant, and Landlord may collect such -11- rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until an Event of Default shall occur in the performance of Tenant's obligations under this Lease, Tenant may receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such rents to Landlord nor by reason of the collection of the rents from a subtenant, be deemed to have assumed or recognized any sublease or to be liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant's obligations to such subtenant under such sublease, including, but not limited to, Tenant's obligation to return any security deposit. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written notice from Landlord stating that an Event of Default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord the rents due as they become due under the sublease. Tenant agrees that such subtenant shall have the right to rely upon any such statement and request from Landlord, and that such subtenant shall pay such rents to Landlord without any obligation or right to inquire as to whether such Event of Default exists and notwithstanding any notice from or claim from Tenant to the contrary. (b) In the event Tenant shall default in the performance of its obligations under this Lease, Landlord at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of Tenant under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to Tenant or for any other prior defaults of Tenant under such sublease. 16.4. Transfer Premium from Assignment or Subletting. Landlord shall be entitled to receive from Tenant (as and when received by Tenant) as an item of additional rent the following amounts (hereinafter the "Transfer Premium"): one hundred percent (100%) of all amounts received by Tenant from such subtenant in excess of the amounts payable by Tenant to Landlord hereunder in excess of the amounts payable by Tenant to Landlord hereunder. "Transfer Premium" shall mean all Yearly Rent, additional rent or other consideration of any type whatsoever payable by the assignee or subtenant in excess of the Yearly Rent and additional rent payable by Tenant under this Lease less Tenant's reasonable expenses incurred in connection with such subletting or assignment, including without limitation, attorneys' fees, tenant improvement costs and brokerage commissions. If less than all of the Premises is transferred, the Yearly Rent and the additional rent shall be determined on a per rentable square foot basis. "Transfer Premium" shall also include, but not be limited to, key money and bonus money paid by the assignee or subtenant to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the assignee or subtenant or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to the assignee or subtenant in connection with such Transfer. 16.5. Landlord's Option to Recapture Space. Notwithstanding anything to the contrary contained in this Article 16, Landlord shall have the option, by giving written notice to Tenant within fifteen (15) days after receipt of any request by Tenant to assign this Lease or to sublease the entire Premises, to terminate this Lease as of the date thirty (30) days after Landlord's election. Landlord may, at its option, lease any recaptured portion of the Premises to the proposed subtenant or assignee or to any other person or entity without liability to Tenant. Tenant shall not be entitled to any portion of the profit, if any, Landlord may realize on account of such termination and reletting. Tenant acknowledges that the purpose of this Article 16.5 is to enable Landlord to receive profit in the form of higher rent or other consideration to be received from an assignee or sublessee, to give Landlord the ability to meet additional space requirements of other tenants of the Building and to permit Landlord to control the leasing of space in the Building. Tenant acknowledges and agrees that the requirements of this Article 16.5 are commercially reasonable and are consistent with the intentions of Landlord and Tenant. Notwithstanding the foregoing, Landlord's option to recapture all or any portion of the Premises shall not apply to any Permitted Related Transfer. 16.6. Landlord's Expenses. In the event Tenant shall assign this Lease or sublet the Premises or request the consent of Landlord to any Transfer, then Tenant shall pay Landlord's reasonable costs and expenses incurred in connection therewith, including, but not limited to, attorneys', architects', accountants', engineers' or other consultants' fees. 17. MISCELLANEOUS COVENANTS Tenant covenants and agrees as follows: 17.1. Rules and Regulations. Tenant will faithfully observe and comply with the Rules and Regulations, if any, annexed hereto as Exhibit 4 and such other and further reasonable Rules and Regulations as Landlord hereafter at any time or from time to time may make and may communicate in writing to Tenant, which in the reasonable judgment of Landlord shall be necessary for the reputation, safety, care or appearance of the Building, or the preservation of good order therein, or the operation or maintenance of the Building, or the equipment thereof, or the comfort of tenants or others in the Building, provided, however, that in the case of any conflict between the provisions of this Lease and any such regulations, the provisions of this Lease shall control, and provided further that nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, contractors, visitors, invitees or licensees. 17.2. Access to Premises-Shoring. Tenant shall: (i) permit Landlord to erect, use and maintain pipes, ducts and conduits in and through the Premises, provided the same do not materially reduce the floor area or materially adversely affect the appearance thereof, (ii) upon prior oral notice (except that no notice shall be required in emergency situations), permit Landlord and any mortgagee of the Building or the Building and land or the interest of Landlord therein, and any lessor under any ground or underlying lease, and their representatives, to have free and unrestricted access to and to enter upon the Premises at all reasonable hours for the purposes of inspection or of making repairs, replacements or improvements in or to the Premises or the Building or equipment (including, without limitation, sanitary, electrical, heating, air conditioning or other systems) or of complying with all laws, orders and requirements of governmental or other authority or of exercising any right reserved to Landlord by this Lease (including the right during the progress of any such repairs, replacements or improvements or while performing work and furnishing materials in connection with compliance with any such laws, orders or requirements to take upon or through, or to keep and store within, the Premises all necessary materials, tools and equipment); and (iii) permit Landlord, at reasonable times, to show the Premises during ordinary business hours to any existing or prospective mortgagee, ground lessor, space lessee, purchaser, or assignee of any mortgage, of the Building or of the Building and the land or of the interest of Landlord therein, and during the period of 12 months next preceding the Termination Date to any person contemplating the leasing of the Premises or any part thereof. If, during the last month of the term, Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord may immediately enter and alter, renovate and redecorate the Premises, without elimination or abatement of rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect upon this Lease. If Tenant shall not be personally present to open and permit an entry into the Premises at anytime when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents may enter the same by a master key, or may forcibly enter the same, without rendering -12- Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting to obligations and covenants of this Lease. Provided that Landlord shall incur no additional expense thereby, Landlord shall exercise its rights of access to the Premises permitted under any of the terms and provisions of this Lease in such manner as to minimize to the extent practicable interference with Tenant's use and occupation of the Premises. If an excavation shall be made upon land adjacent to the Premises or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the Premises for the purpose of doing such work as said persona shall deem necessary to preserve the Building from injury or damage and to support the same by proper foundations without any claims for damages or indemnity against Landlord, or diminution or abatement of rent. 17.3 ACCIDENTS TO SANITARY AND OTHER SYSTEMS. Tenant shall give to Landlord prompt notice of any fire or accident in the Premises or in the Building and of any damage to, or defective condition in, any part or appurtenance of the Building including, without limitation, sanitary, electrical ventilation, heating and air conditioning or other systems located in, or passing through, the Premises. Except as otherwise provided in Articles 18 and 20, and subject to Tenant's obligations in Article 14, such damage or defective condition shall be remedied by Landlord with reasonable diligence, but if such damage or defective condition was caused by Tenant or by the employees, licensees, contractors or invitees of Tenant, the cost to remedy the same shall be paid by Tenant. In addition, all reasonable costs incurred by Landlord in connection with the investigation of any notice given by Tenant shall be paid by Tenant if the reported damage or defective condition was caused by Tenant or by the employees, licensees, contractors or invitees of Tenant. Tenant shall not be entitled to claim any eviction from the Premises or any damages arising from any such damage or defect unless the same (i) shall have been occasioned by the gross negligence or willful misconduct of the Landlord, its agents, servants or employees and (ii) shall not, after notice to Landlord of the condition claimed to constitute gross negligence, have been cured or corrected within a reasonable time after such notice has been received by Landlord; and in case of a claim of eviction unless such damage or defective condition shall have rendered the Premises untenantable for a period in excess of sixty (60) days and they shall not have been made tenantable by Landlord within a reasonable time. 17.4 SIGNS, BLINDS AND DRAPES. Tenant shall put no signs in any part of the Building or the Premises without the prior written consent of Landlord, which may be given or withheld in Landlord's sole discretion. No signs or blinds may be put on or in any window or elsewhere if visible from the exterior of the Building. No signs or blinds may be put on or in any window or elsewhere if visible from the exterior of the Building, nor may the building standard drapes or blinds be removed by Tenant. Tenant may hang its own drapes, provided that they shall not in any way interfere with the building standard drapery or blinds or be visible from the exterior of the Building and that such drapes are so hung and installed that when drawn, the building standard drapery or blinds are automatically also drawn and provided Landlord gives its prior written consent, which may be given or withheld in Landlord's sole discretion. Any signs or lettering in the public corridors or on the doors shall conform to Landlord's building standard design. Neither Landlord's name nor the name of the Building, or the name of any other structure erected therein shall be used without Landlord's consent in any advertising material (except on business stationery or as an address in advertising matter), nor shall any such name, as aforesaid, be used in any undignified, confusing, detrimental or misleading manner. Landlord shall have the right to place any sign it deems appropriate on any portion of the Building except the interior of Tenant's Premises. Notwithstanding anything contained herein to the contrary, Landlord agrees to place Tenant's name on the interior directory located on the first floor of the Building. 17.5 ESTOPPEL CERTIFICATE. Tenant shall at any time upon not less than ten (10) days' prior written notice by Landlord to Tenant, execute, acknowledge and deliver to Landlord a statement in writing certifying such information as the Landlord may reasonably request including, but not limited to, the following: (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, stating the nature of such modifications and certifying that the Lease is in full force and effect as modified), (b) the dates to which the Yearly Rent and other charges have been paid in advance, if any, and the amounts so payable, (c) stating whether or not Landlord is in default in performance of any covenant, agreement, term, provision or condition contained in this Lease and, if so, specifying each such default and such other facts as Landlord may reasonably request, and (d) that all tenant improvements to be constructed by Landlord, if any, have been completed in accordance with Landlord's obligations and Tenant has taken possession of the Premises; it being intended that any such statement delivered pursuant hereto may be relied upon by any prospective purchaser of the Building or encumbrancer of the Building and the land or of any interest of Landlord therein, any mortgagee or prospective mortgagee thereof, any lessor or prospective lessor thereof, any lessee or prospective lessee thereof, or any prospective assignee of any mortgage thereof. Tenant hereby agrees to deliver, and to cause any guarantor of Tenant's obligations to deliver to Landlord (or to any lender or purchaser designated by Landlord) such annual financial statements of Tenant or any guarantor and other information as may be reasonably required by Landlord. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17.6 HAZARDOUS MATERIALS. For the purposes of this Lease, the term "Hazardous Materials" means any hazardous substance, hazardous waste, infectious waste, or toxic substance, material, or waste which becomes regulated or is defined as such by any local, state or federal governmental authority. Except for small quantities of ordinary office supplies such as copier toners, liquid paper, glue, ink and common household cleaning materials, Tenant shall not cause or permit any Hazardous Material to be brought, kept or used in or about the Premises or the Building by Tenant, its agents, employees, contractors, or invitees. Tenant hereby agrees to indemnify Landlord from and against any breach by Tenant of the obligations stated in the preceding sentence, and agrees to defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Building, damages for the loss or restriction or use of rentable space or of any amenity of the Building, damages arising from any adverse impact on marketing of space in the Building, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Term of this Lease as result of such breach. This indemnification of any cleanup, remedial removal, or restoration work required due to the presence of Hazardous Material. Tenant shall promptly notify Landlord of any release of a Hazardous Material in the Premises or at the Building of which Tenant becomes aware, whether caused by Tenant or any other person or entity. The provisions of this Articles 17.6 shall survive the termination of the Lease. Landlord represents and warrants that to its actual knowledge there are no Hazardous Materials on the Land or in the Premises or the Building in violation of any applicable environmental laws, rules or regulations. 17.7 MEDICAL WASTE DISPOSAL. If Tenant produces medical waste, Landlord may, at its option, provide medical waste disposal services to Tenant. If Landlord elects to provide such services, Landlord may require Tenant to use said services. Landlord, may bill Tenant directly for such services, which amounts shall then constitute additional rent hereunder. Tenant waives its right to the fullest extent allowed by law to assert any claim against Landlord in connection with the negligent provision of medical waste disposal services by Landlord. In the event Landlord is unable or chooses not to provide such disposal services to Tenant, Tenant shall arrange for the disposal of its medical waste and such disposal shall be done in compliance with all applicable laws. Tenant hereby agrees to indemnify, defend and hold harmless Landlord against any cost, loss, liability, action, suit or expense (including attorneys' fees) arising out of or relating to the existence of or the disposal of medical waste produced by Tenant at the Premises. -13- 17.8. PROHIBITED MATERIALS AND PROPERTY. Tenant shall not bring or permit to be brought or kept in or on the Premises or elsewhere in the Building (i) any inflammable, combustible or explosive fluid, material, chemical or substance, (ii) any materials, appliances or equipment (including, without limitation, materials, appliances and equipment selected by Tenant for the construction or other preparation of the Premises and furniture and carpeting) which pose any danger to life, safety or health or may cause damage, injury or death; (iii) any unique, unusually valuable, rare or exotic property, work of art or the like unless the same is fully insured under all-risk coverage, or (iv) any data processing, electronic, optical or other equipment or property of a delicate, fragile or vulnerable nature unless the same are housed, shielded and protected against harm and damage, whether by cleaning or maintenance personnel, radiations or emanations from other equipment now or hereafter installed in the Building, or otherwise. Notwithstanding the foregoing, this shall not apply to equipment which is customarily used for office purposes. Nor shall Tenants cause or permit any potentially harmful air emissions, odors of cooking or other processes, or any unusual or other objectionable odors or emissions to emanate from or permeate the Premises. 17.9. REQUIREMENTS OF LAW-FINES AND PENALTIES. Tenant at its sole expense shall comply with all laws, rules, orders and regulations, including, without limitation all energy-related requirements, of Federal, State, County and Municipal Authorities and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Landlord or Tenant with respect to or arising out of Tenant's use or occupancy of the Premises. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to nonperformance or noncompliance with or breach or failure to observe any item, covenant, or condition of this Lease upon Tenant's part to be kept, observed, performed or complied with. If Tenant receives notice of any violation of law, ordinance, order or regulation applicable to the Premises, it shall give prompt notice thereof to Landlord. 17.10. TENANT'S ACTS-EFFECT ON INSURANCE. Tenant shall not do or permit to be done any act or thing upon the Premises or elsewhere in the Building which will invalidate or be in conflict with any insurance policies covering the Building and the fixtures and property therein; and shall not do, or permit to be done, any act or thing upon the Premises which shall subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said Premises or for any other reason. Tenant at its own expense shall comply with all rules, orders, regulations and requirements of the Board of Fire Underwriters, or any other similar body having jurisdiction, and shall not (i) do, or permit anything to be done, in or upon the Premises, or bring or keep anything therein, except as now or hereafter permitted by the Fire Department, Board of Underwriters, Fire Insurance Rating Organization, or other authority having jurisdiction, and then only in such quantity and manner of storage as will not increase the rate for any insurance applicable to the Building, or (ii) use the Premises in a manner which shall increase such insurance rates on the Building, or on property located therein, over that applicable when Tenant first took occupancy of the Premises hereunder. If by reason of the failure of Tenant to comply with the provisions hereof the insurance rate applicable to any policy of insurance shall at any time thereafter be higher than it otherwise would be, the Tenant shall reimburse Landlord for that part of any insurance premiums thereafter paid by Landlord, which shall have been charged because of such failure by Tenant. 17.11. MISCELLANEOUS. Tenant shall not suffer or permit the Premises or any fixtures, equipment or utilities therein or serving the same, to be overloaded, damaged or defaced. Tenant shall not suffer or permit any employee, contractor, business invitee or visitor to violate any covenant, agreement or obligations of the Tenant under this Lease. 18. DAMAGE OR DESTRUCTION. 18.1. EFFECT OF DAMAGE OR DESTRUCTION. If all or part of the Building is materially damaged (as defined in Article 18.2 below) by fire, earthquake, flood, explosion, the elements, riot or any other casualty, Landlord shall have the right in its sole and complete discretion to repair or to rebuild the Building or to terminate this Lease. Landlord shall within sixty (60) days but in no event later than ninety (90) days after the occurrence of such damage, notify Tenant in writing of Landlord's intention to repair or to rebuild or to terminate this Lease. Tenant shall in no event be entitled to compensation or damages on account of annoyance or inconvenience in making any repairs, or on account of construction, or on account of Landlord's election to terminate this Lease. Notwithstanding the foregoing, if Landlord shall elect to rebuild or repair the Building, but in good faith determines that the Building cannot be rebuilt or repaired within two hundred seventy (270) days after the date of the occurrence of the damage, without payment of overtime or other premiums, and the damage to the Building has rendered the Premises unusable, Landlord shall notify Tenant thereof in writing at the time of Landlord's election to rebuild or repair, and Tenant shall thereafter have a period of fifteen (15) days within which Tenant may elect to terminate this Lease, upon written notice to Landlord. Tenant's termination right described in the preceding sentence shall not apply if the damage was caused by Tenant's negligence or willful misconduct. Failure of Tenant to exercise said election within said period shall constitute Tenant's agreement to accept delivery of the Premises under this Lease whenever tendered by Landlord, provided Landlord thereafter pursues reconstruction or restoration diligently to completion, subject to delays beyond Landlord's reasonable control. If all or part of the Building is materially damaged during the last eighteen (18) months of the Term of the Lease, Tenant has not exercised its option to extend the Term of the Lease pursuant to Section 3.4 of the Lease, and Landlord cannot rebuild or repair the Building within sixty (60) days after the occurrence of such material damage, then, Tenant shall have the right to terminate the Lease, by providing written notice to Landlord within thirty (30) days after the occurrence of such material damage. 18.2. DEFINITION OF MATERIAL DAMAGE. The damage shall be deemed material if, in Landlord's reasonable judgment, the uninsured cost of repairing the damage will exceed Five Hundred Thousand Dollars ($500,000.00). If insurance proceeds are available to Landlord in an amount which is sufficient to pay the entire cost of repairing all of the damage to the Building, the damage shall be deemed material if the cost of repairing the damage exceeds One Million Dollars ($1,000,000.00). Damage to the Building shall also be deemed material if (a) the Building cannot be repaired to substantially the same condition it was prior to the damage due to laws or regulations in effect at the time the repairs will be made, (b) the holder of any mortgage or deed of trust encumbering the Building requires that insurance proceeds available to repair the damage in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) be applied to the repayment of the indebtedness secured by the mortgage or the deed of trust, or (c) the damage occurs during the last twelve (12) months of the term of the Lease. 18.3. ABATEMENT OF RENT. If Landlord elects to repair damage to the Building and all or part of the Premises will be unusable or inaccessible to the Tenant in the ordinary conduct of its business until the damage is repaired, and the damage was not caused by the negligence or willful misconduct of Tenant or its employees, agents, contractors or invitees, Tenant's Yearly Rent and Tenant's Proportionate Share of Operating Costs and Taxes shall be abated in proportion to the amount of the Premises which is unusable or inaccessible to Tenant in the ordinary conduct of its business until the repairs are completed. 18.4. TENANT'S NEGLIGENCE. If such damage or destruction occurs as a direct result of the negligence or willful misconduct of Tenant or Tenant's employees, agents, contractors or invitees, and the proceeds of insurance which are actually received by Landlord are not sufficient to repair all of the damage, Tenant shall pay, at Tenant's sole cost and expense, to Landlord upon demand, the difference between the actual cost of repairing the damage as evidenced by third party bills and the insurance proceeds received by Landlord. -14- 18.5. TENANT'S PROPERTY. Landlord shall not be required to repair any injury or damage to, or to make any repairs or replacements of, any fixtures, furniture, equipment or tenant improvements installed in the Premises, and Tenant shall repair and restore all such property at Tenant's sole expense. 19. WAIVER OF SUBROGATION In any case in which Tenant shall be obligated to pay to Landlord any loss, cost, damage, liability, or expense suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset against the amount thereof (i) the net proceeds of any insurance collected by Landlord for or on account of such loss, cost, damage, liability or expense, provided that the allowance of such offset does not invalidate or prejudice the policy or policies under which such proceeds were payable, and (ii) if such loss, cost, damage, liability or expense shall have been caused by a peril against which Landlord has agreed to procure insurance coverage under the terms of this Lease, the amount of such insurance coverage, whether or not actually procured by Landlord. In any case in which Landlord or Landlord's managing agent shall be obligated to pay to Tenant any loss, cost, damage, liability or expense suffered or incurred by Tenant, Tenant shall allow to Landlord or Landlord's managing agent, as the case may be, as an offset against the amount thereof (i) the net proceeds of any insurance collected by Tenant for or on account of such loss, cost, damage, liability, or expense, provided that the allowance of such offset does not invalidate the policy or policies under which such proceeds were payable and (ii) the amount of any loss, cost, damage, liability or expense caused by a peril covered by fire insurance with the broadest form of property insurance generally available on property in buildings of the type of the Building, whether or not actually procured by Tenant. The parties hereto shall each procure an appropriate clause in, or endorsement on, any property insurance policy covering the Premises and the Building and personal property, fixtures and equipment located thereon and therein, pursuant to which the insurance companies waive subrogation or consent to a waiver or right of recovery in favor of either party, its respective agents or employees. Having obtained such clauses and/or endorsements, each party hereby agrees that it will not make any claim against or seek to recover from the other or its agents or employees for any loss or damage to its property or the property of others resulting from fire or other perils covered by such property insurance. 20. CONDEMNATION -- EMINENT DOMAIN If any portion of the Premises or the Building are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs; provided that if so much of the Premises or Building are taken by such condemnation as would substantially and adversely affect the operation and profitability of Tenant's business conducted from the Premises, and said taking lasts for sixty (60) days or more, Tenant shall have the option, to be exercised only in writing within thirty (30) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken possession), to terminate this Lease as of the date the condemning authority takes such possession. If a taking lasts for less than sixty (60) days, Tenant's rent shall be equitably abated during said period but Tenant shall not have the right to terminate this Lease. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent and Tenant's Proportionate Share of Operating Costs and Taxes shall be reduced in the proportion that the usable floor area of the Premises taken bears to the total usable floor area of the Premises. Common Areas taken shall be excluded from the Common Areas usable by Tenant and no reduction of rent shall occur with respect thereto or by reason thereof. Landlord shall have the option in its sole discretion to terminate this Lease as of the taking of possession by the condemning authority, by giving written notice to Tenant of such election within thirty (30) days after receipt of notice of a taking by condemnation of any part of the Premises or the Building. Any award for the taking of all or any part of the Premises or the Building under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, as severance damages, or as damages for tenant improvements; provided, however, that Tenant shall be entitled to any separate award for loss of or damage to Tenant's trade fixtures and removable personal property and any award available for the relocation of Tenant's business. In the event that this Lease is not terminated by reason of such condemnation, and subject to the requirements of any lender that has made a loan to Landlord encumbering the Building, Landlord shall to the extent of severance damages received by Landlord in connection with such condemnation, repair any damage to the Building caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority. Tenant shall pay any amount in excess of such severance damages required to complete such repair. Except as set forth in this Article 20, Landlord shall have no liability to Tenant for interruption of Tenant's business upon the Premises, diminution of Tenant's ability to use the Premises, or other injury or damage sustained by Tenant as a result of such condemnation. 21. DEFAULT; REMEDIES 21.1. DEFAULT BY TENANT. Landlord and Tenant hereby agree that the occurrence of any one or more of the following events (each an "Event of Default") shall give Landlord the rights described in Article 21: (a) Tenant shall neglect or fail to perform or observe any of the Tenant's covenants or agreements herein, with regard to the payment when due of rent, additional charges, reimbursement for increase in Landlord's costs, or any other charge payable by Tenant to Landlord (all of which shall be considered as part of Yearly Rent for the purposes of invoking Landlord's statutory or other rights and remedies in respect of payment defaults) within five (5) days after written notice from Landlord to Tenant. (b) Tenant shall fail or neglect to perform or observe any of the Tenant's covenants or agreements under this Lease other than those specified in 21.1(a) within thirty (30) days after written notice from Landlord of said failure, or such longer time as is reasonably necessary to cure said failure provided Tenant diligently commences and pursues such cure but in no event to exceed sixty (60) days. (c)(i) Tenant being involved in financial difficulties as evidenced by an admission in writing by Tenant of Tenant's inability to pay its debts generally as they become due, or by making or offering to make a composition of its debts with its creditors; (ii) Tenant or any guarantor becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant or guarantor, the same is dismissed within sixty (60) days); (iii) the institution of proceedings seeking the appointment of a trustee, sequesterer, receiver or similar officer to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where either such appointment shall not be vacated within sixty (60) days or such possession is not restored to Tenant within sixty (60) days or the institution of a foreclosure proceeding against Tenant's real or personal property; (iv) an attachment on mesnes process, on execution or otherwise, or other legal process shall issue -15- against Tenant or its property and a sale of any of its assets shall be held thereunder; (v) any judgment, final beyond appeal or any lien, attachment or the like shall be entered, recorded or filed against Tenant in any court, registry, etc. and Tenant shall fail to pay such judgment within sixty (60) days after the judgment shall have become final beyond appeal or to discharge or secure by surety bond such lien, attachment, etc. within thirty (30) days of such entry, recording or filing, as the case may be, or (vi) 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 sixty (60) days. (d) The discovery by Landlord that any financial statement, representation or warranty given to Landlord by Tenant, or by any guarantor of Tenant's obligations hereunder, is or was materially false. (e) If Tenant is a corporation or a partnership, the dissolution or liquidation of Tenant or if any event shall occur or any contingency shall arise whereby this Lease, or the term and estate thereby created, would (by operation of law or otherwise) devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted under Article 21 hereof. Landlord or Landlord's authorized agent shall have the right (without obligation except as may be required by law) to serve any notice of default, notice to pay rent or quit or similar notice. 21.2. Damages - Assignment for Benefit of Creditors. For the more effectual securing to Landlord of the rent and other charges and payments reserved hereunder, it is agreed as a further condition of this Lease that if at any time Tenant or any guarantor shall make any transfer similar to or in the nature of an assignment of its property for the benefit of its creditors, the term and estate hereby created shall terminate ipso facto, without entry or other action by Landlord; and notwithstanding any other provisions of this Lease, Landlord shall forthwith upon such termination, without prejudice to any remedies which might otherwise be available for arrears of rent or other charges due hereunder or preceding breach of this Lease, be ipso facto entitled to recover as liquidated damages the amount described in clause (i) of Article 21.3(a). 21.3. Remedies. (a) At any time after the occurrence of an Event of Default, Landlord may, with or without notice or demand, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such Event of Default. (i) terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease and the Term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. If Landlord terminates this Lease, Landlord may recover from Tenant (A) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (B) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (C) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (D) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Premises, expenses of releasing, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, any real estate commissions actually paid by Landlord and the unamortized value of any free rent, reduced rent, tenant improvement allowance or other economic concessions provided by Landlord. The "worth at time of award" of the amounts referred to in Article 21.3(a)(i)(A) and (B) shall be computed by allowing interest at the rate of the lesser of eighteen percent (18%) per annum or the maximum interest rate permitted by applicable law. The worth at the time of award of the amount referred to in Article 21.3(a)(i)(C) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of Boston at the time of award plus one percent (1%). For purposes of this Article 21.2(a)(i), "rent" shall be deemed to be all monetary obligations required to be paid by Tenant pursuant to the terms of this Lease. (ii) maintain Tenant's right of possession in which event Landlord shall have the remedy which permits Landlord to continue this Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due. (iii) collect sublease rents (or appoint a receiver to collect such rent) and otherwise perform Tenant's obligations at the Premises, it being agreed, however, that the appointment of a receiver for Tenant shall not constitute an election by Landlord to terminate this Lease. (iv) pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises are located. (b) No remedy or election hereunder shall be deemed exclusive, but shall, wherever possible, be cumulative with all other remedies at law or in equity. (c) Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the term of this Lease would have expired if it had not been terminated hereunder. (d) If Tenant abandons or vacates the Premises, Landlord may re-enter the Premises and such re-entry shall not be deemed to constitute Landlord's election to accept a surrender of the Premises or to otherwise relieve Tenant from liability for its breach of this Lease. No surrender of the Premises shall be effective against Landlord unless Landlord has entered into a written agreement with Tenant in which Landlord expressly agrees to (i) accept a surrender of the Premises and (ii) relieve Tenant of liability under the Lease. The delivery of keys to Landlord or any employee or agent of Landlord shall not constitute the termination of the Lease or the surrender of the Premises. 21.4. Default by Landlord. Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust encumbering the Building whose name and address shall have theretofore been furnished to Tenant -16- in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its cure, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently pursues the same to completion. If Landlord is in default of the Lease as set forth in this Section 21.4 beyond all applicable grace and cure periods, Tenant may, but shall not be required to, use reasonable means to cure such default, and Landlord agrees to reimburse Tenant for all costs incurred within 30 days of receiving Tenant's demand therefor. 21.5. LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to Landlord of Yearly Rent, Tenant's Proportionate Share of Operating Costs and Taxes, after hours additional heat, cleaning or air conditioning service charges, or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed encumbering the Building. Accordingly, if any installment of Yearly Rent, Tenant's Proportionate Share of Operating Costs and Taxes, after hours additional heat, cleaning or air conditioning service charges or any other sum due from Tenant shall not be received by Landlord when such amount shall be due, then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to four percent (4%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder including the assessment of interest under Article 21.6. 21.6. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Landlord that is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum or the maximum interest rate permitted by applicable law. Payment of such interest shall not excuse or cure any default by Tenant under this Lease; provided, however, that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant. 21.7. PAYMENT OF RENT AFTER DEFAULT. If Tenant fails to pay Yearly Rent, Tenant's Proportionate Share of Operating Costs and Taxes or any other monetary obligation due hereunder on the date it is due, after Tenant's third failure to pay any monetary obligation on the date it is due, at Landlord's option, all monetary obligations of Tenant hereunder shall thereafter be paid by cashiers check. If Landlord has required Tenant to make said payments by cashiers check, Tenant's failure to make a payment by cashiers check shall be an Event of Default hereunder. 21.8. FEES AND EXPENSES. (a) If Tenant shall default in the performance of any covenant on Tenant's part to be performed as in this Lease contained, Landlord may after the satisfaction of all applicable notice requirements and the expiration of all applicable cure periods, perform the same for the account of Tenant. If Landlord at any time is compelled to pay or elects to pay any sum of money, or do any act which will require the payment of any sum of money, by reason of the failure of Tenant to comply with any provision hereof, or if Landlord is compelled to or does incur any expense, including reasonable attorneys' fees, in instituting, prosecuting and/or defending any action or proceeding instituted by reason of default of Tenant hereunder, Tenant shall on demand pay to Landlord by way of reimbursement the sum or sums so paid by Landlord with all costs and damages, plus interest computed as provided in Article 6 hereof. (b) Tenant shall pay Landlord's cost and expense, including reasonable attorneys' fees, incurred (i) in enforcing any obligation of Tenant under this Lease or (ii) as a result of Landlord, without its fault being made party to any litigation pending by or against Tenant or any persons claiming through or under Tenant. 21.9. LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be lawfully entitled, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein. Notwithstanding anything to the contrary in this Article 21 contained, except to the extent prohibited by applicable law, any statutory notice and grace periods provided to Tenant by law are hereby expressly waived by Tenant. 22. END OF TERM - ABANDONED PROPERTY Upon the expiration or other termination of the term of this Lease, Tenant shall peaceably quit and surrender to Landlord the Premises and all alterations and additions thereto, broom clean, in good order, repair and condition (except as provided herein and in Articles 8.7, 18 and 20), excepting only ordinary wear and use and damage by fire or other casualty for which, under other provisions of this Lease, Tenant has no responsibility of repair or restoration. Tenant shall remove all of its property to the extent specified by Landlord, all alterations and additions made by Tenant and all partitions wholly within the Premises, and shall repair any damages to the Premises or the Building caused by their installation or by such removal. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease. Tenant will remove any personal property from the Building and the Premises upon or prior to the expiration or termination of this Lease and any such property which shall remain in the Building or the Premises thereafter shall be conclusively deemed to have been abandoned, and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, then Landlord may see fit. If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same at its option against the expenses of the sale, the cost of moving and storage, any arrears of Yearly Rent, additional or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under Article 21 hereof or pursuant to law. If Tenant or anyone claiming under Tenant shall remain in possession of the Premises or any part thereof after the expiration or prior termination of the term of this Lease then, at Landlord's option, the person remaining in possession shall be deemed a tenant-at-sufferance. In the event that Tenant holds over with Landlord's consent, such occupancy shall be deemed a tenancy from month to month. Whereas the parties hereby acknowledge that Landlord may need the Premises after the expiration or prior termination of the term of the Lease for other tenants and that the damages which Landlord may suffer as the result of Tenant's holding-over cannot be determined as of the Execution Date hereof. Tenant hereby agrees to -17- indemnify, defend and hold harmless Landlord from any cost, loss, claim or liability (including attorneys' fees) Landlord may incur as a result of Tenant's failure to surrender possession of the Premises to Landlord. In the event that Tenant holds over with or without Landlord's consent, such occupancy shall be upon all the terms and conditions of this Lease pertaining to the obligations of Tenant, including that Tenant shall pay to Landlord, for each month or portion thereof that Tenant shall retain possession of the Premises after the expiration of termination of the Lease, whether by lapse of time or otherwise, in addition to all rental and other charges due and accrued under the Lease prior to the date of termination, use and occupancy charges equal to two hundred percent (200%) of the greater of (a) the then fair market rent for the Premises as conclusively determined by Landlord or (b) the sum of the Yearly Rent and additional rent at the rate payable monthly during the twelve (12) months immediately preceding the expiration or termination of the Lease and all Extension Options, if any, shall be deemed terminated and of no further effect. In addition, Tenant shall hold Landlord harmless from all damages which Landlord may suffer as the result of Tenant's holdover after the termination of the term of the Lease. 23. SUBORDINATION (a) Subject to any mortgagee's or ground lessor's election, as hereinafter provided for, this Lease is subject and subordinate in all respects to all matters of record (including, without limitation, deeds and land disposition agreements), ground leases and/or underlying leases, and all mortgages, deeds of trust, or any other hypothecation or security, any of which may now or hereafter be placed on or affect such leases and/or the real property of which the Premises are a part, or any part of such real property, and/or Landlord's interest or estate therein, and to each advance made on the security thereof and/or hereafter to be made under any such mortgages, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefor. This Article 23 shall be self-operative and no further instrument or subordination shall be required. In confirmation of such subordination, Tenant shall execute, acknowledge and deliver promptly any certificate or instrument that Landlord and/or any mortgagee and/or lessor under any ground or underlying lease and/or their respective successors in interest may request, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf of and in the name of Tenant under certain circumstances, as hereinafter provided. Tenant agrees to execute and acknowledge any documents required to effectuate an attornment or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Tenant acknowledges that, where applicable, any consent or approval hereafter given by Landlord may be subject to the further consent or approval of such mortgagee and/or ground lessor, and the failure or refusal of such mortgagee and/or ground lessor to give such consent or approval shall, notwithstanding anything to the contrary in this Lease contained, constitute reasonable justification for Landlord's withholding its consent or approval. (b) Any such mortgagee or ground lessor may from time to time subordinate or revoke such subordination of the mortgage or ground lease held by it to this Lease. Such subordination or revocation, as the case may be, shall be effected by written notice to Tenant and by recording an instrument of subordination or of such revocation, as the case may be, with the appropriate registry of deeds or land records and to be effective without any further act or deed on the part of Tenant. In confirmation of such subordination or of such revocation, as the case may be, Tenant shall execute, acknowledge and promptly deliver any certificate or instrument that Landlord, any mortgagee or ground lessor may request, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in the name of Tenant under certain circumstances, as hereinafter provided. (c) Without limitation of any of the provisions of this Lease, if any ground lessor or mortgagee shall succeed to the interest of Landlord by reason of the exercise of its rights under such ground lease or mortgage (or the acceptance of voluntary conveyance in lieu thereof) or any third party including without limitation any foreclosure purchaser or mortgage receiver) shall succeed to such interest by reason of any such exercise or the expiration or sooner termination of such ground lease, however caused, then such successor may, upon notice and request to Tenant (which, in the case of a ground lease, shall be within thirty (30) days after such expiration or sooner termination), succeed to the interest of Landlord under this Lease, provided, however, that such successor shall not: (i) be liable for any previous act or omission of Landlord under this Lease; (ii) be subject to any offset, defense, or counterclaim which shall theretofore have accrued to Tenant against Landlord; (iii) have any obligation with respect to any security deposit unless it shall have been paid over or physically delivered to such successor, or (iv) be bound by any previous modification of this Lease of which it did not have prior written notice or by any previous payment of Yearly Rent for a period greater than one (1) month, made without such ground lessor's or mortgagee's consent where such consent is required by applicable ground lease or mortgage documents. In the event of such succession to the interest of the Landlord -- and notwithstanding that any such mortgage or ground lease may antedate this Lease -- the Tenant shall attorn to such successor and shall ipso facto be and become bound directly to such successor in interest to Landlord to perform and observe all the Tenant's obligations under this Lease without the necessity of the execution of any further instrument. Nevertheless, Tenant agrees at any time and from time to time during the term hereof to execute a suitable instrument in confirmation of Tenant's agreement to attorn, as aforesaid, subject to Landlord's, mortgagee's and ground lessor's right to do so for, on behalf and in the name of Tenant under certain circumstances, as hereinafter provided. (d) The term "mortgage(s)" as used in this Lease shall include any mortgage or deed of trust. The term "mortgagee(s)" as used in this Lease shall include any mortgagee or any trustee and beneficiary under a deed of trust or receiver appointed under a mortgage or deed of trust. The term "mortgagor(s)" as used in this Lease shall include any mortgagor or any grantor under a deed of trust. (e) Tenant's failure to execute any documents required to effectuate an attornment, a subordination or to make this lease or any option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, shall constitute an Event of Default by Tenant hereunder or, at Landlord's option, Landlord or any such mortgagee or ground lessor and their respective successors in interest, acting singly, shall have the right as Tenant's attorney-in-fact to execute and deliver any such certificate or instrument for, on behalf and in the name of Tenant, but only if Tenant fails to execute, acknowledge and deliver any such certificate or instrument within ten (10) days after Landlord or such mortgagee or such ground lessor has made written request therefor. (f) Notwithstanding anything to the contrary contained in this Article 23, if all or part of Landlord's estate and interest in the real property of which the Premises are a part shall be a leasehold estate held under a ground lease, then: (i) the foregoing subordination provisions of this Article 23 shall not apply to any mortgages of the fee interest in said real property to which Landlord's leasehold estate is not otherwise subject and subordinate; and (ii) the provisions of this Article 23 shall in no way waive, abrogate or otherwise affect any agreement by any ground lessor (x) not to terminate this Lease incident to any termination of such ground lease prior to its term expiring or (y) not to name or join Tenant in any action or proceeding by such ground lessor to recover possession of such real property or for any other relief. (g) In the event of any failure by Landlord to perform, fulfill or observe any agreement by Landlord herein, in no event will the Landlord be deemed to be in default under this Lease permitting Tenant to exercise any or all rights or remedies under this Lease until the Tenant shall have given written notice of such failure to any mortgagee (ground lessor and/or trustee) of which Tenant shall have been advised and until a reasonable period of time shall have elapsed following the -18- giving of such notice, during which such mortgagee (ground lessor and/or trustee) shall have the right, but shall not be obligated, to remedy such failure. 24. QUIET ENJOYMENT Landlord covenants that if, and so long as, Tenant keeps and performs each and every covenants, agreement term, provision and condition herein contained on the part and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the Premises from and against the claims of all persons claiming by, through or under Landlord subject, nevertheless, to the covenants, agreements, terms, provisions and conditions of this Lease and to the mortgages, ground leases and/or underlying leases to which this Lease is subject and subordinate, as hereinabove set forth. Without incurring any liability to Tenant, Landlord may permit access to the Premises and open the same, whether or not Tenant shall be present, upon any demand of any receiver, trustee, assignee for the benefit of creditors, sheriff, marshal or court officer entitled to, or reasonably purporting to be entitled to, such access for the purpose of taking possession of, or removing, Tenant's property or for any other lawful purpose (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or to this Lease, or in or to the Premises), or upon demand of any representative of the fire, police, building, sanitation or other department of the city, state or federal governments. 25. LANDLORD RESERVATIONS Landlord shall have the right: (a) to change the name and address of the Building upon not less than ninety (90) days prior written notice; (b) to provide and install Building standard graphics on or near the door of the Premises and such portions of the Common Areas as Landlord shall determine, in Landlord's sole discretion; and (c) to permit any tenant the exclusive right to conduct any business as long as such exclusive right does not conflict with any rights expressly given herein. Tenant shall not suffer or permit anyone, except in an emergency, to go upon the roof of the Building. Landlord reserves the right to use the exterior walls of the Premises, and the area beneath, adjacent to and above the Premises together with the right to install, use, maintain and replace equipment, machinery, pipes, conduits and wiring through the Premises, which serve other parts of the Building provided that Landlord's use does not unreasonably interfere with Tenant's use of the Premises. 26. CHANGES TO BUILDING Landlord shall have the right, in Landlord's sole discretion, from time to time, to make changes to the size, shape, location, number and extent of the improvements comprising the Building (hereinafter referred to as "Changes") including, but not limited to, the Building interior and exterior, the Common Areas, elevators, escalators, restrooms, electrical systems, communication systems, fire protection and detection systems, plumbing systems, security systems, driveways, entrances, and landscaped areas. Notwithstanding the foregoing, in the event that any of the proposed changes will materially adversely affect Tenant's access to the Premises on a permanent basis, Landlord will not undertake such changes without Tenant's prior written consent. In connection with the Changes, Landlord may, among other things, erect scaffolding or other necessary structures at the Building, limit or eliminate access to portions of the Building, including portions of the Common Areas, or perform work in the Building, which work may create noise, dust or lease debris in the Building. Tenant hereby agrees that such Changes and Landlord's actions in connection with such Changes shall in no way constitute a constructive eviction of Tenant or entitle Tenant to any abatement of rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Changes, nor shall Tenant be entitled to any compensation or damages from Landlord for any inconvenience or annoyance occasioned by such Changes or Landlord's actions in connection with such Changes. 27. ENTIRE AGREEMENT - WAIVER - SURRENDER 27.1. ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof contain the entire and only agreement between the parties and any and all statements and representations, written and oral, including previous correspondence and agreements between the parties hereto, are merged herein. Tenant acknowledges that all representations and statements upon which it relied in executing this Lease are contained herein and that the Tenant in no way relied upon any other statements or representations, written or oral. Any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Lease in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 27.2. WAIVER BY LANDLORD. The failure of Landlord to seek redress for violation, or to insist upon the strict performance, of any covenant or condition of this Lease, or any of the Rules and Regulations promulgated hereunder, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of such Rules and Regulations against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provisions of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent 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 rent or pursue any other remedy in this Lease provided. Tenant hereby waives for Tenant and all those claiming under Tenant all rights now or hereafter existing to redeem by order or judgment of any court or by legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease. 27.3. SURRENDER. No act or thing done by Landlord during the term hereby demised shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises. In the event that Tenant at any time desires to have Landlord underlet the Premises for Tenant's account, Landlord or Landlord's agents are authorized to receive the keys for such purposes without releasing Tenant from any of the obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant's effects in connection with such underletting. 28. INABILITY TO PERFORM - EXCULPATORY CLAUSE Except as expressly provided in this Lease, this Lease and the obligations of Tenant to pay rent hereunder and perform all the other covenants, agreements, terms, provisions and conditions hereunder on the part of Tenant to be -19- performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, replacements, additions, alterations, improvements or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strikes or labor troubles or any other similar or dissimilar cause whatsoever beyond Landlord's reasonable control, including but not limited to, governmental preemption in connection with a national emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or other similar or dissimilar emergency. In each such instance of inability of Landlord to perform, Landlord shall exercise reasonable diligence to eliminate the cause of such inability to perform. Tenant acknowledges that Landlord shall have the right to transfer all or any portion of its interest in the Building and to assign this Lease to the transferee. Tenant agrees that in the event of such a transfer Landlord shall automatically be released from all liability under this Lease from and after the date of such transfer, and Tenant hereby agrees to look solely to Landlord's transferee for the performance of Landlord's obligations hereunder after the date of the transfer. Upon such a transfer, Landlord shall, at its option, return Tenant's security deposit to Tenant or transfer Tenant's security deposit to Landlord's transferee and, in either event, Landlord shall have no further liability to Tenant for the return of its security deposit. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for loss of or damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Building, nor shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents or contractors, whether such damage or injury is caused by or results from any cause whatsoever including, but not limited to, theft, criminal activity at the Building, negligent security measures, bombings or bomb scares, hazardous waste, fire, steam, electricity, gas, water or rain, breakage of pipes, sprinklers, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, or from new construction or the repair, alteration or improvement of any part of the Building, or of the equipment, fixtures or appurtenances applicable thereto, and regardless of whether the cause of the damage or injury arises out of the Landlord's or its employees or agents negligent or intentional acts. Tenant assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secured. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant, occupant or user of the Building, nor from the failure of Landlord to enforce the provisions of the lease of any other tenant of the Building. Tenant, as a material part of the consideration to Landlord hereunder, hereby assumes all risk of damage to property of Tenant or injury to persons, in, upon or about the Building arising from any cause, including Landlord's negligence or the negligence of its agents, partners or employees, and Tenant hereby waives all claims in respect thereof against Landlord, its agents, partners and employees. Tenant shall neither assert nor seek to enforce any claim against Landlord, or Landlord's agents or employees, or the assets of Landlord or of Landlord's agents or employees, for breach of this Lease or otherwise, other than against Landlord's interest in the Building of which the Premises are a part and in the uncollected rents, issues and profits thereof, including without limitation the proceeds of a sale of the Building, and, subject to the rights of any lender holding a mortgage or deed of trust encumbering all or part of the Building, Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord under this Lease, it being specifically agreed that in no event shall Landlord, or Landlord's agents or employees (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives, and the like, disclosed or undisclosed, thereof) ever be personally liable for any such liability. This paragraph shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or to take any other action which shall not involve the personal liability of Landlord to respond in monetary damages from Landlord's assets other than the Landlord's interest in said real estate, as aforesaid. In no event shall Landlord or Landlord's agents or employees (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives and the like, disclosed or undisclosed, thereof) ever be liable for loss of profits, loss of the value of Tenant's business, or consequential or incidental damages. 29. BILLS AND NOTICES Any notice required or permitted to be given hereunder shall be in writing and may be given by certified mail, return receipt requested, personal delivery, Federal Express, facsimile or other delivery service. If notice is given by certified mail, return receipt requested, notice shall be deemed given three (3) days after the notice is deposited with the U.S. Mail, postage prepaid, addressed to Tenant at the Premises or at the address set forth in the Lease Summary Sheet or to Landlord at the address set forth in the Lease Summary Sheet. If notice is given by personal delivery, Federal Express, facsimile or other delivery service, notice shall be deemed given on the date the notice is actually received by Landlord or Tenant. Either party may by notice to the other specify a different address for notice purposes. Notwithstanding the address set forth in the Lease Summary Sheet for Tenant, upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for notice purposes. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time designate by notice to Tenant. A copy of all notices to Tenant shall be delivered to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109, Attn: Donna M. Sherry, Esq. 30. PARTIES BOUND - SEIZING OF TITLE The covenants, agreements, terms, provisions and conditions of this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party hereto is named or referred to, except that no violation of the provisions of Article 16 hereof shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Article 30 shall not be construed as modifying the conditions of limitation contained in Article 21 hereof. If, in connection with or as a consequence of the sale, transfer or other disposition of the real estate (land and/or Building, either or both, as the case may be) of which the Premises are a part Landlord ceases to be the owner of the reversionary interests in the Premises, from and after the date of such sale, transfer, or other disposition, Landlord shall be entirely freed and relieved from the performance and observance thereafter of all covenants and obligations hereunder on the part of Landlord to be performed and observed, it being understood and agreed in such event (and it shall be deemed and construed as a covenant running with the land) that the person succeeding to Landlord's ownership of said reversionary interest shall thereupon and thereafter assume, and perform and observe, any and all of such covenants and obligations of Landlord. 31. MISCELLANEOUS -20- 31.1. SEPARABILITY. If any provision of this Lease or portion of such provision or the application thereof to any person or circumstance is for any reason held invalid or unenforceable, the remainder of the Lease (or the remainder of such provision) and the application thereof to other persons or circumstances shall not be affected thereby. 32.2. CAPTIONS, ETC. The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provisions thereof. References to "State" shall mean, where appropriate, the District of Columbia and other Federal territories, possessions, as well as a state of the United States. 31.3. BROKER. Tenant represents and warrants that it has not directly or indirectly dealt, with respect to the leasing of office space in the Building with any other broker or had its attention called to the Premises or other space to let in the Building by anyone other than the broker, person or firm, if any, designated in the Lease Summary Sheet. Landlord shall be responsible for the payment of all brokerage commissions payable to the Brokers listed in the Lease Summary Sheet on account of this Lease. Tenant agrees to indemnify Landlord and hold Landlord harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of Tenant's dealings with any real estate broker or agent other than as specified in the Lease Summary Sheet. Landlord agrees to indemnify Tenant with respect to any claims for brokerage commissions made against Tenant. 31.4. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Building, and Landlord shall have no liability to Tenant due to its failure to provide such services. Tenant assumes all responsibility for the protection of Tenant, its agents, employees, contractors and invitees and the property of Tenant and of Tenant's agents, employees, contractors and invitees from acts of third parties. Nothing herein contained shall prevent Landlord, at Landlord's sole option, from implementing security measurements for the Building or any part thereof, in which event Tenant shall participate in such security measures and the cost thereof shall be included within the definition of Operating Costs. Landlord shall have the right, but not the obligation, to require all persons entering or leaving the Building to identify themselves to a security guard and to reasonably establish that such person should be permitted access to the Building. Notwithstanding the foregoing, Landlord shall continue to provide the same level of nighttime security service that it presently provides for the benefit of the Building, provided, however, that Landlord shall have no liability to Tenant due to its failure to provide such service in the future. 31.5. EASEMENTS. Landlord reserves to itself the right, from time to time, to grant such easements, rights and dedications that Landlord deems necessary or desirable, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign any of the aforementioned documents within ten (10) days after Landlord's request and Tenant's failure to do so shall constitute an Event of Default by Tenant. The obstruction of Tenant's view, air, or light by any structure erected, whether by Landlord or third parties, shall in no way affect this Lease or impose any liability upon Landlord. 31.6. AMENDMENTS; MODIFICATIONS. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. If in connection with obtaining financing for the Building, a bank, insurance company, pension trust or other institutional lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not withhold, delay or condition its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created. 31.7. ARBITRATION. Any disputes relating to provisions or obligations in this Lease as to which a specific provision for a reference to arbitration is made herein shall be submitted to arbitration in accordance with the provisions of applicable state law, as from time to time amended. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the rules, regulations and procedures from time to time in effect as promulgated by the American Arbitration Association. Prior written notice of application by either party for arbitration shall be given to the other at least ten (10) days before submission of the application to the said Association's office in the City wherein the Building is situated (or the nearest other city having an Association office). The arbitrator shall hear the parties and their evidence. The decision of the arbitrator shall be binding and conclusive, and judgment upon the award or decision of the arbitrator may be entered in the appropriate court of law; and the parties consent to the jurisdiction of such court and further agree that any process or notice of motion or other application to the Court or a Judge thereof may be served outside the State wherein the Building is situated by registered mail or by personal service, provided a reasonable time for appearance is allowed. The costs and expenses of each arbitration hereunder and their apportionment between the parties shall be determined by the arbitrator in his award or decision. No arbitrable dispute shall be deemed to have arisen under this Lease prior to the expiration of the period of twenty (20) days after the date of the giving of written notice by the party asserting the existence of the dispute together with a description thereof sufficient for an understanding thereof. 31.8. GOVERNING LAW. This Lease is made pursuant to, and shall be governed by, and construed in accordance with, the laws of the State wherein the Building is situated and any applicable local municipal rules, regulations, by-laws, ordinances and the like and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Building is located. 31.9. ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of its interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to or held by a bank, trust company, insurance company or other institutional lender holding a mortgage or ground lease on the Building, Tenant agrees: (a) that the execution thereof by Landlord and the acceptance thereof by such mortgagee and/or ground lessor shall never be deemed an assumption by such mortgagee and/or ground lessor or any of the obligations of the Landlord thereunder, unless such mortgagee and/or ground lessor shall, by written notice sent to the Tenant specifically otherwise elect; and (b) that, except as aforesaid, such Mortgagee and/or ground lessor shall be treated as having assumed the Landlord's obligations thereunder only upon foreclosure of such mortgagee's mortgage or deed of trust or termination of such ground lessor's ground lease and the taking of possession of the demised Premises after having given notice of its exercise of the option stated in Article 23 hereof to succeed to the interest of the Landlord under this Lease. 31.10. REPRESENTATION OF AUTHORITY. By their execution hereof each of the signatories on behalf of the respective parties hereby warrants and represents to the other that he is duly authorized to execute this Lease on behalf of such party. If Tenant is a corporation, Tenant hereby appoints the signatory whose name appears below on behalf of Tenant as Tenant's attorney-in-fact for the purpose of executing this Lease for and on behalf of Tenant. -21- 31.11. EXPENSES INCURRED BY LANDLORD UPON TENANT REQUESTS. Tenant shall, upon demand, reimburse Landlord for all reasonable expenses, including, without limitation, legal fees, incurred by Landlord in connection with all requests by Tenant for consents, approvals or execution of collateral documentation related to this Lease, including, without limitation, costs incurred by Landlord in the review and approval of Tenant's plans and specifications in connection with proposed alterations to be made by Tenant to the Premises, requests by Tenant to sublet the Premises or assign its interest in the Lease, the execution by Landlord of estoppel certificates requested by Tenant, and requests by Tenant for Landlord to execute waivers of Landlord's interest in Tenant's property in connection with third party financing by Tenant. Such costs shall be deemed to be additional rent under the Lease. 31.12. SURVIVAL. Without limiting any other obligation of the Tenant which may survive the expiration or prior termination of the term of the Lease, all obligations on the part of Tenant to indemnify, defend, or hold Landlord harmless, as set forth in this Lease (including, without limitation, Tenant's obligations under Articles 13(d) and 15.3) shall survive the expiration or prior termination of the term of the Lease. 31.13. TIME OF ESSENCE. Time is of the essence with respect to each of the obligations to be performed by Landlord and Tenant under this Lease. 31.14. COVENANTS. This Lease shall be construed as though the covenants contained herein are independent and not dependent and Tenant hereby waives the benefit of any statute to the contrary. 31.15. ATTORNEYS' FEES. If Landlord or Tenant brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys' fees and court costs to be paid by the losing party as fixed by the court in the same or separate suit, and whether or not such action is pursued to decision or judgment. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees and court costs reasonably incurred in good faith. Landlord shall be entitled to reasonable attorneys' fees and all other costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. 31.16. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas. The holding of any auction on the Premises or Common Areas in violation of this Article 31.17 shall constitute an Event of Default hereunder. 31.17. MERGER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall not result in the merger of Landlord's and Tenant's estates, and shall, unless otherwise expressly agreed at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 31.18. AUTHORITY. If Tenant is a corporation, trust or general or limited partnership, Tenant, and each individual executing this Lease on behalf of such entity, represents and warrants that such individual is duly authorized to enter into this Lease, and that this Lease is enforceable against said entity in accordance with its terms. If Tenant is a corporation, trust or partnership, Tenant shall deliver to Landlord upon demand evidence of such authority satisfactory to Landlord. 31.19. CONFLICT. Except as otherwise provided herein to the contrary, any conflict between the printed provisions, Exhibits, Addenda or Riders of this Lease and the typewritten or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 31.20. INTERPRETATION. This Lease shall be interpreted as if it was prepared by both parties and ambiguities shall not be resolved in favor of Tenant because all or a portion of this Lease was prepared by Landlord. The captions contained in this Lease are for convenience only and shall not be deemed to limit or alter the meaning of this Lease. As used in this Lease the words tenant and landlord include the plural as well as the singular. Words used in the neuter gender include the masculine and feminine gender. 31.21. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant. 31.22. RULES AND REGULATIONS. Tenant agrees to abide by and conform to the Rules and to cause its employees, suppliers, customers and invitees to so abide and conform. Landlord shall have the right, from time to time, to modify, amend and enforce the Rules, which modifications and amendments shall be in writing and shall be provided to Tenant. Landlord shall not be responsible to Tenant for the failure of other persons including, but not limited to, other tenants, their agents, employees and invitees to comply with the Rules. 31.23. RIGHT TO LEASE. Landlord reserves the absolute right to effect such other tenancies in the Building as Landlord in its sole discretion shall determine, and Tenant is not relying on any representation that any specific tenant or number of tenants will occupy the Building. 31.24. SECURITY FOR PERFORMANCE OF TENANT'S OBLIGATIONS. Notwithstanding any security deposit held by Landlord pursuant to Article 31.27, Tenant hereby agrees that in the event of a default by Tenant, Landlord shall be entitled to seek and obtain a writ of attachment and/or a temporary protective order and Tenant of attachment and/or temporary protective order on the basis of the Commonwealth of Massachusetts Code of Civil Procedure or any other related statute or rule. 31.25. FINANCIAL STATEMENTS. At Landlord's request, Tenant shall cause the following financial information to be delivered to Landlord, once during any given year, and at any time after the occurrence of an Event of Default by Tenant under this Lease after Tenant has requested Landlord's consent to an assignment, at Tenant's sole cost and expense, upon not less than ten (10) days' advance written notice from Landlord: (a) a current financial statement for Tenant and Tenant's financial statements for the previous two accounting years, (b) a current financial statement for any guarantor(s) of this Lease and the guarantor's financial statements for the previous two accounting years and (c) such other financial information pertaining to Tenant or any guarantor as Landlord or any lender or purchaser of Landlord may reasonably request. All financial statements shall be prepared in accordance with generally accepted accounting principals consistently applied and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. -22- 31.26. ATTACHMENTS. The items listed in the Lease Summary Sheet are a part of this Lease and are incorporated herein by this reference. 31.27. SECURITY DEPOSIT. Tenant shall, at the time that Tenant executes and delivers this Lease to Landlord, deliver to Landlord an unconditional letter of credit issued or confirmed by a Massachusetts lending institution satisfactory to Landlord (the "Bank") in favor of Landlord in the initial amount of $409,500.00, which amount shall represent 50% of the total letter of credit amount of $819,000.00, with the subsequent balance of $409,500.00 being due and payable before or on the Term Commencement Date, as security for the full and faithful performance and observance by Tenant of the terms, conditions and provisions of this Lease. Tenant agrees to cause the Bank to keep such unconditional letter of credit (or a renewal thereof) in effect for the balance of the Term. Notwithstanding the foregoing, on the second anniversary of the Term Commencement Date and on each anniversary thereafter during the Term, in the event that no defaults then exist on the part of Tenant, and no defaults have occurred at any time during the prior six (6) month period, the amount of the letter of credit shall be reduced by an amount equal to one third of the original amount of the Letter of Credit for each year thereafter. In no event shall said security deposit be deemed to be a prepayment of rent nor shall it be considered a measure of liquidated damages. Tenant agrees to cause the Bank to renew said unconditional letter of credit in same form (subject to the foregoing reduction, if applicable) from time to time during the Term of this Lease, at least sixty (60) days prior to the expiration of said letter of credit or any renewal thereof (such letter of credit, as so renewed, the "Letter of Credit") so that a Letter of Credit shall be in force and effect throughout the term of this Lease. The Letter of Credit shall provide that it is without the Bank's consent, at no charge to Landlord. In the event Tenant defaults in respect of any of the terms, conditions or provisions of this Lease, which default is not cured by Tenant within any applicable grace periods or if Tenant has not presented Landlord with a renewed Letter of Credit at least sixty (60) days prior to the expiration of the Letter of Credit or any renewal thereof, (i) upon five (5) business days written notice to Tenant, Landlord shall have the right to require the Bank to make payment to Landlord of the entire proceeds of the Letter of Credit, (ii) Landlord may apply all or part of the Security Deposit to the extent required for the payment of any Yearly Rent, additional rent or other sums as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrue before or after summary proceedings or other re-entry by Landlord, without thereby waiving any other rights or remedies of Landlord with respect to such default, and (iii) Landlord shall hold the remainder of the Security Deposit, if any, as security for the faithful performance and observance by Tenant of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed with the same rights as hereinabove set forth to apply the same in the event of any further default by Tenant under this Lease. If Landlord applies all or any part of the Security Deposit (by virtue of a draw on the Letter of Credit or otherwise), Tenant shall within ten (10) days after written demand by Landlord therefor, increase the amount of the Letter of Credit to its required amount or deposit with Landlord a sum equal to the amount so applied as security as aforesaid, failing which Landlord shall have the same rights and remedies as for the non-payment of Yearly Rent, and additional rent beyond the applicable grace period. Tenant agrees that no interest shall accrue on said deposit and that Landlord shall have no obligation to maintain such deposit in a separate account (i.e. Landlord shall have the right to commingle such deposit with other funds of Landlord). The application of all or any part of the deposit to any obligation or default of Tenant under this Lease shall not deprive Landlord of any other rights or remedies Landlord may have nor shall such application by Landlord constitute a waiver by Landlord. Provided that Tenant is not in default of any of its obligations under the Lease at the expiration of the Term of the Lease and after Tenant has vacated the Premises, Landlord shall refund to Tenant any portion of said security deposit which Landlord is then holding within thirty (30) days after the expiration of the Term. 31.28. NOTICE OF LEASE; RECORDING. (a) Tenant agrees not to record the Lease, but each party hereto agrees, at the request of the other, to execute a Notice of Lease in recordable form in compliance with applicable Massachusetts law and reasonably satisfactory to both parties and their respective attorneys. In no event shall such Notice of Lease set forth the rent or other charges payable by Tenant under the Lease; and such notice shall expressly state that it is executed pursuant to the provisions contained in the Lease, and is not intended to vary the terms and conditions of the Lease. It is hereby agreed that the requesting party shall pay all fees with respect to the recording of the Notice of Lease, the recording of any amendments thereto and the recording of any notice of termination thereof. (b) If the Term Commencement Date and the Termination Date are not determined at the time that a Notice of Lease has been executed by the parties, then each of the parties hereto agrees, upon demand of the other party after the Term Commencement Date and Termination Date have been determined, to join in the execution, in recordable form, of a statutory notice, memorandum, etc. of lease and/or written declaration in which shall be stated such Term Commencement Date and (if need be) the Termination Date. If this Lease is terminated before the term expires, then upon Landlord's request the parties shall execute, deliver and record an instrument acknowledging such fact and the date of termination of this Lease, and Tenant hereby appoints Landlord its attorney-in-fact in its name and behalf to execute such instrument if Tenant shall fail to execute and deliver such instrument after Landlord's request therefor within ten (10) days. -23- IN WITNESS WHEREOF the parties hereto have executed this Indenture of Lease in multiple copies, each to be considered an original hereof, as a sealed instrument on the day and year noted in the Lease Summary Sheet as the Execution Date. LANDLORD: TENANT: AMES POND LCC, PROGRESSIVE TECHNOLOGIES, INC. a Delaware limited liability a Massachusetts corporation company By: Berkeley Investments, Inc. its managing member By: /s/ [ILLEGIBLE] By: David Palmer --------------------------- -------------------------------- [ILLEGIBLE] Sr. V.P. D. Palmer President --------------------------- -------------------------------- (Name and Title) (Name and Title) IF TENANT IS A CORPORATION, A SECRETARY'S OR CLERK'S CERTIFICATE OF THE AUTHORITY AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT SHOULD BE ATTACHED. COMMONWEALTH, DISTRICT OR STATE OF MASSACHUSETTS COUNTY OF MIDDLESEX On the Execution Date stated in the Lease Summary Sheet, the person above signing this Lease for and on behalf of the Tenant, to me personally known, did sign and execute this Lease and, being by me duly sworn, did depose and say that he is the officer of the above named Tenant, as noted, and that he signed his name hereto by order of the Board of Directors of said Tenants. /s/ [ILLEGIBLE] ----------------------------------- Notary Public My Commission Expires: June 25, 2004 STATE OF MASSACHUSETTS COUNTY OF SUFFOLK On the Execution Date stated in the Lease Summary Sheet, the person above signing this Lease for and on behalf of Landlord to me personally known, did sign and execute this Lease and, being by me duly sworn, did depose and say that he is the duly authorized representative of Landlord. /s/ [ILLEGIBLE] ----------------------------------- Notary Public My Commission Expires: 10-22-04 -24- EX-10.27 8 b40853baex10-27.txt LEASE BETWEEN BENTALL PROPERTIES & WESTMINISTER... Exhibit 10.27 LEASE NO: 117500 CRESTWOOD CORPORATE CENTRE Richmond, B.C. LEASE Between - BENTALL PROPERTIES LTD. and WESTMINSTER MANAGEMENT CORPORATION as Landlord and - BROOKS AUTOMATION (CANADA) CORP. as Tenant CRESTWOOD CORPORATE CENTRE Richmond, B.C. Table of Contents Basic Terms: ............................................................ 1 .01 Area of Leased Premises., ...................................... 1 .02 Basic Rent ..................................................... 1 .03 Permitted Use .................................................. 1 .04 Term ........................................................... 2 Article 1 - Demise and Term: ............................................ 2 1.01 Demise and Term ............................................... 2 1.02 Surrender of Leased Premises .................................. 2 Article 2 - Rent: 2 2.01 Basic Rent .................................................... 2 2.02 Additional Rent ............................................... 2 2.03 Adjustment of Additional Rent ................................. 3 2.04 Manner and Place of Payment ................................... 3 2.05 Irregular Calculation of Basic Rent ........................... 3 2.06 Disproportionate Allocation ................................... 3 2.07 Net Lease Intent .............................................. 3 Article 3 - Construction and Fixturing of Leased Premises: .............. 4 3.01 Landlords and Tenants Work .................................... 4 3.03 Payment for Landlord's Work ................................... 4 3.04 Acceptance of Leased Premises ................................. 4 Article 4 - Conduct of Business: ........................................ 5 4.01 Use of Leased Premises ........................................ 5 4.02 Prohibited Uses ............................................... 5 4.04 Signs and Advertising Displays ................................ 5 4.05 Nuisance and Annoyance ........................................ 5 4.06 Coin Operated Machines ........................................ 6 4.07 Loud Speakers and Other Advertising Apparatus ................. 6 4.08 Delivery of Supplies and Materials ............................ 6 4.09 Ordinances and Regulations .................................... 6 4.10 Rules and Regulations ......................................... 6 Article 5 - Repairs: .................................................... 6 5.01 Tenant's Repairs .............................................. 6 5.02 Perimeter Walls and Glass ..................................... 7 5.03 Landlord's Examination of Leased Premises ..................... 7 5.04 Landlord's Right to Repair .................................... 7 5.05 Landlord's Right to Enter for Other Repairs ................... 7 5.06 Landlord's Repairs ............................................ 7 5.07 Landlord's Obligation to Maintain ............................. 8 5.08 Damage and Destruction ........................................ 8 5.09 Qualifications ................................................ 8 5.10 Condition of Expiration ....................................... 9 Article 6 - Common Areas and Common Facilities: ......................... 9 6.01 Tenant's Use of Parking Areas ................................. 9 6.02 Landlord's Right to Remove Vehicles ........................... 9 6.03 Control of Common Areas and Common Facilities ................. 9 6.04 Merchandise on Common Area .................................... 10 6.05 Customer Parking .............................................. 10
Article 7 - Assignment and Sub-letting: ................................. 10 7.01 Prohibitions .................................................. 10 7.02 Control of Corporation ........................................ 11 7.03 Assignment by Landlord ........................................ 11 Article 8 - Insurance: .................................................. 11 8.01 Tenant to Insure .............................................. 11 8.02 Not to Affect Landlord's Insurance ............................ 11 8.03 Landlord to Insure ............................................ 11 Article 9 - Tenant Alterations: ......................................... 12 9.01 Painting, Decorating and Alterations .......................... 12 9.02 Landlord's Property ........................................... 12 9.03 Prohibitions .................................................. 12 9.04 No Liens ...................................................... 13 Article 10 - Public Utilities and Taxes: ................................ 13 10.01 Public Utilities, Business Tax and Machinery Tax ............. 13 10.02 Payment of Real Property Taxes by Landlord ................... 13 10.03 Increase in Real Property Taxes Attributable to Tenant ....... 13 10.04 Goods and Services Tax ....................................... 13 Article 11- Exclusion of Liability and Indemnity: ....................... 14 11.01 Exclusion of Liability ....................................... 14 11.03 Mutual Waiver of Subrogation and Indemnity ................... 15 Article 12 - Landlord's Rights and Remedies ............................. 15 12.01 Default ...................................................... 15 12.02 Consequences of Default ...................................... 16 12.03 Non-Waiver ................................................... 17 12.04 Right of Landlord to Perform Tenant's Covenants .............. 17 12.05 Time for Payment and Legal Costs ............................. 17 12.06 Remedies Cumulative .......................................... 17 Article 13 - Mortgages and Assignment by Landlord: ...................... 17 13.01 Sale or Financing of Development ............................. 17 13.02 Subordination and Acknowledgment ............................. 18 13.03 Offset Statement ............................................. 18 13.04 Registration ................................................. 18 Article 14 - Overholding Tenant: ........................................ 18 14.01 No Tacit Renewal ............................................. 18 Article 15 - Quiet Possession: .......................................... 19 15.01 Quiet Possession ............................................. 19 Article 16 - Legal Relationships: ....................................... 19 16.01 No Partnership ............................................... 19 16.02 Joint and Several Liability .................................. 19 16.03 Successors and Assigns ....................................... 19 Article 17 - Notices: ................................................... 19 17.01 Notices ...................................................... 19 Article 18 - General: ................................................... 20 18.01 Collateral Representations and Agreements ....................... 20
18.02 Management of Development .................................... 20 18.03 Time of the Essence .......................................... 20 18.04 Unavoidable Delays ........................................... 20 18.05 Accord and Satisfaction ...................................... 20 18.06 Competition Act .............................................. 20 18.07 Covenants .................................................... 21 18.08 Consent or Approval of Landlord .............................. 21 18.09 For Lease Signs .............................................. 21 18.10 The Commercial Tenancy Act ................................... 21 18.11 No Exclusivity ............................................... 21 18.12 Schedules .................................................... 21 18.13 Applicable Law ............................................... 21 18.14 Headings ..................................................... 21 18.15 Tenant's Acceptance .......................................... 21 18.16 Arbitration .................................................. 21 18.17 Severability ................................................. 21 Article 19 - Definitions: ............................................... 22 19.01 Additional Rent .............................................. 22 19.02 Area of Leased Premises ...................................... 22 19.03 Basic Rent ................................................... 22 19.04 Basic Term ................................................... 22 19.05 Building ..................................................... 22 19.06 Budding Operation and Maintenance Costs ...................... 22 19.07 Commencement Date ............................................ 23 19.08 Common Areas ................................................. 23 19.09 Common Facilities ............................................ 23 19.10 Development .................................................. 23 19.11 Development Operation and Maintenance Costs .................. 23 19.12 Force Majeure ................................................ 24 19.13 Gross Leasable Area .......................................... 24 19.14 HVAC Costs ................................................... 24 19.15 Landlord's Architect ......................................... 24 19.16 Landlord's Work .............................................. 24 19.17 Lands ........................................................ 24 19.18 Lease ........................................................ 24 19.19 Lease Year ................................................... 24 19.20 Leased Premises .............................................. 25 19.21 Other Buildings .............................................. 25 19.22 Permitted Use ................................................ 25 19.23 Prime Rate ................................................... 25 19.24 Real Property Taxes .......................................... 25 19.25 Rent ......................................................... 25 19.26 Tax Cost ..................................................... 25 19.27 Tenants Proportionate Share .................................. 25 19.28 Tenants Work ................................................. 25 19.29 Term ......................................................... 25 19.30 Year of the Term ............................................. 25 Article 20 - Special Provisions: ........................................ 25 20.01 Deposit ...................................................... 25 20.02 Pre-Authorized Payment Plan .................................. 25 20.03 Rent Abatement ............................................... 26 20.04 Signage ...................................................... 26 20.05 Right of Second Refusal ...................................... 26 20.06 Expansion Option ............................................. 26 20.07 Tenant Improvement Allowance ................................. 27 20.08 Extension of Term ............................................ 27 SCHEDULES: .............................................................. 29 Schedule A Plan of the Premises .................................... 29 Schedule B Landlord's Work ......................................... 32 Schedule C Signage ................................................. 34 Schedule D Indemnity Agreement ..................................... 35 Schedule E Environmental Covenants ................................. 38
THIS LEASE made the 21st day of August, 1996. BETWEEN: BENTALL PROPERTIES LTD., a body corporate, having its head office at Suite 3100, Three Bentall Centre, in the City of Vancouver, in the Province of British Columbia and WESTMINSTER MANAGEMENT CORPORATION, a body corporate, having a business office at Suite 600, 355 Burrard Street, in the City of Vancouver, in the Province of British Columbia (collectively the "Landlord") OF THE FIRST PART AND: BROOKS AUTOMATION (CANADA) CORP., a body corporate, having a business address of Main Floor, 13777 Commerce Parkway, Richmond, British Columbia. (the "Tenant") OF THE SECOND PART WHEREAS: (A) by agreement dated July 5, 1996 (the "Agreement") the Landlord and the Tenant agreed to enter into a lease with respect to the Leased Premises; and (B) the Landlord has represented to the Tenant that the Landlord is the registered owner of the Lands, subject however to such liens, charges and encumbrances as are registered against the title thereto as at the date hereof, and has constructed, or is in the process of constructing, improvements thereon, including the Building generally in accordance with the plans set forth in Schedule "A"; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the rents, covenants and agreements hereinafter reserved and contained, the parties agree to this Lease of the Leased Premises on the terms and conditions set forth herein: BASIC TERMS .01 Area of Leased Premises: approximately 41,200 square feet. .02 Basic Rent: years 1 to 4: $576,800.00 per annum, $48,066.67 per month, based on an annual rate of $14.00 per square foot of the Area of Leased Premises; and years 5 and 6: $597,400.00 per annum, $49,783.33 per month, based on an annual rate of $14.50 per square foot of the Area of Leased Premises. .03 Permitted Use: Approximately 85% of the Area of Leased Premises shall be used for commercial offices and approximately 15% of the Area of Leased Premises shall be used for light assembly. The Tenant shall be permitted to install and operate, subject to the Landlord's prior approval of design and location and further subject to such installation and operation conforming to all applicable codes and by-laws, the following: (a) a wave solder machine requiring venting to the exterior of the Building; -1- (b) pressurized gas bottles, provided they are inert gases or air such as nitrogen or helium; (c) a small cafeteria including steam tables, microwaves and oven; and (d) a bike rack in the outdoor area. .04 Term: Six (6) years commencing on the Commencement Date and ending on October 31, 2002. The foregoing Basic Terms are agreed to by the Landlord and the Tenant and any reference in this Lease to any one of the same shall include the provisions set forth above with respect thereto and in addition any more specific definition or reference hereinafter provided. ARTICLE 1 Demise and Term 1.01 Demise and Term The Landlord does hereby demise and lease unto the Tenant the Leased Premises to have and to hold for and during the Term. For so long as the Tenant duly and punctually pays the Rent, and performs and observes its covenants herein undertaken, the Tenant shall be entitled for the benefit of the Leased Premises to enjoy, upon the terms and conditions established or altered pursuant to this Lease, the use in common with others entitled thereto of the Common Areas and the Common Facilities. 1.02 Surrender of Leased Premises Upon the expiration or sooner termination of this Lease, the Tenant shall vacate and surrender to the Landlord the Leased Premises in accordance with the provisions of this Lease. Except to the extent as otherwise expressly agreed by the Landlord in writing, no leasehold improvements, trade fixtures, furniture or equipment shall be removed by the Tenant from the Leased Premises either during or at the expiration or sooner termination of the Term except that the Tenant: (a) may at the end of the Term, if it is not in default hereunder, remove its trade fixtures; (b) shall at the end of the Term remove such trade fixtures, furnishings, equipment and inventory as the Landlord shall require to be removed; (c) may, if it is not in default hereunder, remove its furnishings, equipment and inventory at the end of the Term, and also during the Term in the usual and normal course of its business where such furnishings or equipment have become excess for the Tenant's purposes or the Tenant is substituting therefor new furnishings and equipment. The Tenant shall, in the case of every removal either during or at the end of the Term, make good any damage caused to the Leased Premises and any leasehold improvements therein by the installation and removal. ARTICLE 2 Rent 2.01 Basic Rent The Tenant shall pay to the Landlord for each and every Year of the Term, the Basic Rent specified in Basic Term .02, by equal monthly instalments, each in advance on the first day of each and every month during the Term, the first of such monthly instalments to be paid on the Commencement Date. If the Term commences on a day which is not the first day of a calendar month then the instalment of Basic Rent payable on the broken portion of a calendar month at the beginning of the Term shall be calculated at a rate per day of 1/365th of the annual Basic Rent. 2.02 Additional Rent The Tenant shall pay to the Landlord for each and every Lease Year or portion thereof, the Additional Rent for such Lease Year or portion thereof. The amount of Additional Rent which the Tenant is to pay in each Lease Year or portion thereof shall be estimated by the Landlord in advance and the Tenant shall pay to the Landlord such amount in equal monthly instalments in advance during such Lease Year or the portion thereof. -2- The amount of the estimated Additional Rent may be adjusted, from time to time, during a Lease Year by the Landlord giving notice to the Tenant, in which event the remaining payments to be made by the Tenant as aforesaid in such Lease Year shall be adjusted accordingly. All remedies of the Landlord on non-payment of rent shall be applicable to the Additional Rent and the obligation of the Tenant to pay any monies pursuant to this Lease shall survive the expiration or sooner termination of this Lease. 2.03 Adjustment of Additional Rent Within ninety (90) days after the end of each Lease Year, the Landlord shall furnish to the Tenant a statement of the actual amount of Additional Rent payable by the Tenant for such preceding Lease Year and showing in reasonable detail the information relevant and necessary to the calculation thereof. If the amount payable by the Tenant as shown on such statement is more or less than the Additional Rent paid by the Tenant to the Landlord for such Lease Year pursuant to Article 2.02, the appropriate adjustment as between the Landlord and the Tenant shall be made within thirty (30) days of delivery of such statement. Any payment made by the Landlord or made by the Tenant and accepted by the Landlord in respect of any adjustment made pursuant to this Article 2.03 shall be without prejudice to the right of the Landlord or the Tenant to claim a re-adjustment provided such claim if made by the Tenant or the Landlord is made within one hundred twenty (120) days after, the date of delivery of the statement referred to in this Article 2.03. The Tenant shall have the right for a period of one hundred twenty (120) days following receipt of the aforesaid statement to, at its sole expense, inspect during the Landlord's normal business hours, subject to the inspection being reasonable in all the circumstances, any record kept or held by the Landlord of the costs or expenses claimed by the Landlord for such Lease Year and the Landlord shall make its said records available accordingly. 2.04 Manner and Place of Payment All Rent and all other sums payable by the Tenant to the Landlord hereunder shall be paid to the Landlord at the office of the Landlord hereinafter set forth, or at such other place as the Landlord may in writing, from time to time, direct, without notice or demand, except as otherwise specifically provided herein, and without deduction, set off or abatement for any reason whatsoever. The Landlord may at its option apply all or any sums received from or due to the Tenant against amounts due and payable by the Tenant hereunder in such manner as the Landlord sees fit, regardless of any designation or instructions by the Tenant to the contrary. The Tenant shall pay to the Landlord interest at a rate equal to the lesser of the maximum rate permitted by law or the rate that is three (3%) percent per annum above the Prime Rate on all arrears of Rent or other sums payable by the Tenant to the Landlord pursuant to the terms hereof, from, except as otherwise specifically provided herein, the date of default in payment, until payment is received by the Landlord. 2.05 Irregular Calculation of Basic Rent If for any reason it is necessary to calculate Basic Rent for a period of one or more months, but less than a Year of the Term, the same shall be calculated on the basis of 1/12 of the Basic Rent being payable for each month. If for any reason it becomes necessary to calculate Basic Rent for a period of less than one month the same shall be calculated on the basis of 1/365 of the Basic Rent being payable for each day in such period. Without restricting the generality of the foregoing, in the event the Commencement Date occurs other than on the first day of a month, the first instalment of Basic Rent paid by the Tenant in accordance with Article 2.01 shall be based on the period from the Commencement Date to and including the last day of the month in which the Commencement Date occurs. 2.06 Disproportionate Allocation Notwithstanding anything else herein otherwise contained, to the extent that the Landlord, acting reasonably, determines that an item included in Additional Rent properly related to only a portion of the Development or to a portion of the Building, the Landlord may allocate such item to such portion of the Development or Building, as the case may be, in which event the Tenant's Proportionate Share, if the Leased Premises are within such portion, shall be calculated in relation to the Gross Leasable Area of all leasable premises in such portion. 2.07 Net Lease Intent Except to that extent otherwise specifically provided herein this Lease shall be a net lease to the Landlord such that the Basic Rent shall be received by the Landlord free of all outgoings whatsoever, the Tenant to pay for its own account all amounts, charges, costs, duties, fees, rates and taxes in any way relating to the Leased Premises as well as the Additional Rent herein provided. -3- ARTICLE 3 Construction and Fixturing of Leased Premises 3.01 Landlord's and Tenant's Work The parties agree that the work to be done by the Landlord is as set out in Schedule "B" hereto and that any additional work shall be Tenant's Work hereunder. For greater certainty, the Tenant acknowledges and agrees that it is accepting possession of the Leased Premises in "as is where is" condition as of the commencement of the Fixturing Period (as hereinafter defined). Prior to the Tenant accepting possession of the Leased Premises the Landlord will provide and install at the Landlord's expense the following Landlord's work: (a) providing the Leased Premises according to Base Building Specifications as set out in Schedule "B" hereto; (b) building standard demising walls; (c) building standard entrance and exit doors for the Leased Premises including a door connecting the lunch area to the outdoor area; and (d) a scissor lift of the same general specifications as in Xillix Technologies Corp. premises at 13775 Commerce Parkway. The Landlord shall also ensure that there is access for five tonne trucks to the Tenant's loading areas. The Landlord shall provide the Tenant with a preliminary space plan at a cost not to exceed $0.10 per square foot of the Area of Leased Premises and a full set of base building construction drawings including specifications at no cost to the Tenant. The Tenant shall be responsible for its own improvements to the Leased Premises and shall have the right to improve the internal stairwell connecting the Leased Premises. Should the Tenant require additional utilities because of the nature of its business, in excess of those already provided to the Leased Premises, then the Tenant shall be responsible for the cost of installing and/or supplying such additional utilities, subject to the Landlord's prior approval. In addition, the Tenant shall have the right to make minor improvements to the landscaped area outside of the Building and to install picnic tables near the door adjacent to the Tenant's lunch room, subject to the Landlord's prior approval. The Tenant shall be entitled to a Rent free fixturing period (the "Fixturing Period") which shall expire October 31, 1996 for the purposes of fixturing and installing improvements in the Leased Premises. All the terms of this Lease shall be applicable during the Fixturing Period save for the payment of Rent. 3.03 Payment for Landlord's Work All work done at the Tenant's request (including the supplying of materials or equipment) by the Landlord or its contractors or sub-contractors in or relating to the Leased Premises, over and above Landlord's Work, shall be paid for by the Tenant in accordance with the terms agreed to by the Landlord and the Tenant prior to commencement of any such work. 3.04 Acceptance of Leased Premises The taking of possession of the Leased Premises by the Tenant to construct the Tenant's Work shall be deemed to be conclusive proof that except for items noted in a list prepared by the Tenant during a joint inspection by the Tenant and the Landlord at the time of the taking of such possession and within thirty (30) days thereafter, the Leased Premises are in the condition called for by this Lease to the extent that the Landlord is responsible therefor and that the Landlord has performed all of the Landlord's Work with respect thereto in a good -4- and workmanlike manner. The itemizing of any matter in such list by the Tenant shall not preclude the Landlord from disputing the categorization of such matter as a deficiency. ARTICLE 4 Conduct of Business 4.01 Use of Leased Premises The Tenant shall not use or occupy the Leased Premises or any part thereof for any purpose other than the Permitted Use, without consent of the Landlord first had and obtained. 4.02 Prohibited Uses The Tenant shall not, at any time, carry on nor suffer, permit or allow to be carried on in the Leased Premises any fire sale, distress sale, bankruptcy sale, going-out-of-business sale, or any other business sale designed to convey to the public that business operations are to be discontinued, an auction, a pawn business, a mail order business or any other business which because of the merchandise likely to be sold or the merchandising or pricing methods likely to be used would, in the reasonable opinion of the Landlord, tend to lower the character of the Development, or any other business or occupation which shall be deemed by the Landlord to be a nuisance. 4.04 Signs and Advertising Displays The Tenant, after first obtaining the written approval of the Landlord, which approval shall not be unreasonably withheld or delayed, to, or at the request of the Landlord with instructions as to the specifications, design, location and method of installation, shall at the expense of the Tenant install, maintain and operate during such reasonable hours as the Landlord may determine a sign in accordance with the sign criteria of the Landlord as such criteria are set out in Schedule "C" hereto. The Tenant shall not erect or place, or suffer to be erected or placed or maintain any other signs of any nature or kind whatsoever either on the exterior walls of the Leased Premises or elsewhere in the Development without the approval of the Landlord. The Tenant shall not erect or place or suffer to be erected or placed in the display windows of the Leased Premises, any signs, decoration, lettering or advertising matter of any kind (including signs placed in the interior of the Leased Premises for exterior view) without first obtaining the Landlord's written approval, which approval may not be unreasonably withheld. All signs or other materials, referred to in this Article 4.04 shall remain the property of the Tenant and the Tenant shall remove the same at the expiration of the Term or such shorter period to which the approval relates and shall make good any damage caused by such installation or removal. 4.05 Nuisance and Annoyance The Tenant shall not use or occupy the Leased Premises or suffer or permit the same to be used or occupied for any unlawful purpose, or for any dangerous, noxious or offensive trade or business, or for any purpose likely to cause a nuisance or annoyance to the Landlord or any other tenants of the Development nor undertake any operation likely to cause the same, nor commit or suffer to be done any waste, damage or disfigurement or injury to the Development or any part thereof nor permit or suffer the overloading of any floors therein. -5- 4.06 Coin Operated Machines The Tenant shall not have or permit or suffer to be on the Leased Premises any machines selling merchandise or services or providing entertainment, whether by coins, credit cards or otherwise except for machines providing food, cigarettes or beverages for employee use, unless expressly approved by the Landlord in writing. 4.07 Loud Speakers and Other Advertising Apparatus The Tenant shall not have or permit any public address, music broadcast or other sound system which may be heard beyond the limits of the Leased Premises. 4.08 Delivery of Supplies and Materials The delivery and shipping of merchandise, supplies, fixtures and other materials or goods of whatsoever nature to or from the Leased Premises and all loading, unloading and handling thereof shall be done through such entrances as designated by the Landlord and at such times and by such means as approved by the Landlord. 4.09 Ordinances and Regulations The Tenant shall observe and fulfil the provisions and requirements of all statutes, orders in council, bylaws, rules and regulations, relating directly or indirectly to the use of the Leased Premises and shall comply with all reasonable requirements of any insurer under any policy of insurance affecting the Development except to the extent such observation, fulfillment and compliance require structural repairs or changes. 4.10 Rules and Regulations The Tenant shall observe and comply with and use its best efforts to cause its employees, agents, licensees and invitees to observe and comply with any and all rules and regulations communicated by the Landlord to the Tenant, from time to time, which in the reasonable, good faith judgment of the Landlord are necessary or desirable in relation to all aspects of the use and occupancy by the Tenant of the Leased Premises, the Building, the Common Areas and the Common Facilities including for the reputation, care, safety and appearance of the Development, the preservation of good order therein and the operation and maintenance thereof, provided that such rules and regulations do not conflict with any express provisions of this Lease and are not discriminatory against the Tenant and are enforced in a uniform manner. The Tenant specifically acknowledges that the Landlord has and shall have the right to make rules and regulations as aforesaid. ARTICLE 5 Repairs 5.01 Tenant's Repairs The Tenant shall at all times during the Term, at its own cost and expense, repair, maintain, operate and keep the Leased Premises, all equipment, fixtures and mechanical systems (including heating, ventilating and air-conditioning systems) within the Leased Premises or elsewhere (if such equipment, fixtures or systems are provided for the use or benefit of the Leased Premises) and any improvements now or hereafter made to the Leased Premises in good order, firstclass condition and repair (reasonable wear and tear and repairs which are the Landlord's responsibility pursuant to Article 5.06 hereof only excepted) in accordance with the statutory building scheme registered against title to the Lands and without limiting the generality of the foregoing, the Tenant shall, during the Term, cause such good management and care to be taken of the Leased Premises and various parts thereof that no material injury to the same shall occur and all water closets, sinks, heating and air-conditioning and ventilating apparatus located in the Leased Premises shall be maintained in a state of efficient and good working order. The Tenant shall be responsible for all such maintenance, repairs, replacements and such decorating and shall promptly with due diligence, at its sole expense, carry out any and all of the foregoing. The Tenant shall be responsible for all janitorial services respecting the Leased Premises (including the washing of windows therein) so as to keep the Leased Premises in a clean and tidy condition. The Landlord shall arrange to have the outside of the exterior windows washed twice a year with the cost of such cleaning to be included in Additional Rent. Notwithstanding the foregoing provisions of this Section 5.01, if the Building is primarily used for office purposes, the task of repairing, maintaining and operating the heating, ventilating and air-conditioning systems and other building standard equipment and mechanical systems within or serving the Leased Premises shall be the responsibility of the Landlord (save only to the extent that any such equipment or systems are installed -6- by or for the sole use of the Tenant) and the costs thereof shall form part of the HVAC Costs or Building Operation and Maintenance Costs, as the case may be hereunder. 5.02 Perimeter Walls and Glass The Tenant shall promptly repair or make whole all damaged glass, plate glass, doors and windows in the Leased Premises as and whenever the same is required. 5.03 Landlord's Examination of Leased Premises The Landlord and any employee, servant, agent or contractor of the Landlord shall be entitled, upon reasonable notice during normal business hours and at any time in the event of an emergency, to enter and examine the state of maintenance, repair, decoration and cleanliness of the Leased Premises, all equipment and fixtures within the Leased Premises and any improvements now or hereafter made to the Leased Premises and the Landlord may give notice to the Tenant requiring that the Tenant perform such maintenance or effect such repairs, replacements or decoration or cleaning as is the responsibility of the Tenant and as may be found necessary from such examination. 5.04 Landlord's Right to Repair In the event that the Tenant fails forthwith after receipt of written notice thereof, or within such reasonable time thereafter if for any cause beyond the control of the Tenant it is not reasonable in the circumstances (it being agreed that lack of finances on the part of the Tenant shall not be treated as a cause beyond the Tenant's control), to commence and diligently proceed to perform such maintenance or effect such repairs, replacements, decorations or cleaning as so specified in any notice given by the Landlord which is in accordance with the Tenant's obligation hereunder, the Landlord, its employees, servants, agents or contractors may, but shall not be obligated to, enter the Leased Premises and at the Tenant's expense, perform and carry out the same and the Landlord in so doing shall not be liable for inconvenience, disturbance, loss of business or other damage resulting therefrom and in the event the Landlord expends any monies pursuant to the provisions of this Article 5.04, the Tenant shall pay the same to the Landlord on demand with a fee of fifteen (15%) percent of such amount for the Landlord's supervisory function and in addition shall pay interest on the aggregate of the foregoing at the rate provided in this Lease from the date of the expenditure of such first mentioned monies by the Landlord. 5.05 Landlord's Right to Enter for Other Repairs The Landlord, and any employee, servant, agent or contractor of the Landlord shall have the right to enter the Leased Premises at all times during business hours and at any time in the case of an emergency to make such alterations or repairs as the Landlord is required to make pursuant to the terms of this Lease or shall deem necessary for the safety, preservation, proper administration or improvement of the Development or any portion thereof and the Landlord in so doing, shall not be liable for inconvenience, disturbance, loss of business or other damage resulting therefrom provided the Landlord acts in a commercially reasonable manner to mitigate the disruption to the business of the Tenant and to comply with the Tenant's reasonable security requirements. 5.06 Landlord's Repairs The Landlord shall, from time to time, throughout the Term: (a) at its sole cost, carry out as soon as possible in the circumstances after receipt of notice thereof in writing from the Tenant, structural repairs to the foundations, exterior walls (excluding store-fronts and glass), structural subfloors, the roof, the structural portions of bearing walls and structural columns and beams which interfere with or impair the use, occupancy or safety of the Leased Premises; (b) carry out repairs or replacements to the Common Areas and the Common Facilities, including the heating, ventilating and air-conditioning systems forming part of the Common Facilities; and (c) repair all damage to the Leased Premises which is covered by any insurance effected by the Landlord in accordance with the provisions of Article 8.03 hereof to the extent of the proceeds of such insurance applicable thereto; PROVIDED HOWEVER that if any such repairs are necessitated by the negligence or misconduct of the Tenant, its servants, agents, contractors, licensees, employees or others for whom in law the Tenant is responsible, the Tenant shall pay to the Landlord on demand the cost of such repairs and a fee of fifteen (15%) percent for the Landlord's supervisory function and interest on the aggregate amount of both of the foregoing from the date of expenditure of the first mentioned monies by the Landlord. -7- PROVIDED FURTHER that in any event the Landlord shall not be responsible for any damages, loss or injury sustained by the Tenant or any person or persons claiming through or under it, by reason of defects giving rise to the need for such repairs or the consequence thereof, including the inconvenience occasioned to the Tenant by the entry of the Landlord, its employees, servants, agents, or contractors on the Leased Premises to effect such repairs, provided the Landlord acts in a commercially reasonable manner when the presence and extent of any defects comes to its notice. 5.07 Landlord's Obligation to Maintain The Landlord shall maintain and keep the Common Areas and the Common Facilities in a state of repair and cleanliness consistent with the standard of a first class development of a similar nature. 5.08 Damage and Destruction In the event of damage or destruction of the Leased Premises of the Building by fire, lightning, earthquake, tempest or other casualty so that: (a) the same is damaged or destroyed to the extent that the same cannot with reasonable diligence be rebuilt, repaired or restored within one hundred and twenty (120) days of the date of damage or destruction (as determined in the opinion in writing of the Landlord's Architect, which written opinion shall be delivered to the Tenant within thirty (30) days of the occurrence of such damage or destruction) or the estimated cost of rebuilding, repairing or restoring such damage or destruction will exceed by $250,000 or more, the anticipated proceeds of insurance available to the Landlord for that purpose, then, notwithstanding any other term or condition of this Lease to the contrary, the Landlord or the Tenant may terminate this Lease by notice in writing to the Tenant or the Landlord, as the case may be, given within sixty (60) days of the occurrence of such damage or destruction, such notice to be effective as at the date of the damage or destruction if the Leased Premises are not capable of being utilized by the Tenant as determined by the Landlord's Architect and otherwise to be effective at the date specified in such notice of termination which shall not be less than thirty (30) days following receipt of such notice by the Tenant and in either of such events, the Rent hereby reserved shall be forthwith payable by the Tenant to the effective date of the termination, the Term hereby granted shall terminate as at that date and the Landlord may as at the effective date of termination re-enter and take possession of the Leased Premises and deal with the same as fully and effectively as if these presents had not been entered into. But if within the said period of sixty (60) days, the Landlord and the Tenant shall not give notice terminating this Lease, then as soon as reasonably practicable thereafter, the Landlord shall undertake or continue the rebuilding, repair or restoration with all reasonable diligence and the Basic Rent hereby reserved, or a proportionate part thereof depending upon the proportion of the Leased Premises that are not fit for use by the Tenant for the intended purpose of this Lease, shall abate until the Leased Premises have been rebuilt and made fit for the intended purposes of this Lease; (b) the same is damaged or destroyed to the extent that the same can with reasonable diligence be rebuilt, repaired or restored within one hundred and twenty (120) days of the date of such damage or destruction (as determined in the opinion in writing of the Landlord's Architect, which written opinion shall be delivered to the Tenant within thirty (30) days of the occurrence of such damage or destruction) and the Landlord is not otherwise entitled to terminate this Lease pursuant to Article 5.08(a) the Landlord shall as soon as reasonably practicable after such determination, undertake or continue the repair of the same with all reasonable diligence provided, however, that nothing herein contained shall impose any obligation upon the Landlord to complete such repair within the said period of one hundred and twenty (120) days and the Basic Rent hereby reserved, or a proportionate part thereof depending upon the proportion of the Leased Premises that are not fit for use by the Tenant for the intended purposes of this Lease, shall abate until the Leased Premises have been rebuilt and made fit for the intended purposes of this Lease. 5.09 Qualifications (a) For the purposes of Article 5.08 the terms "Leased Premises" and "Building" shall be deemed not to include the Tenant's trade fixtures, merchandise, stockin-trade, furniture or any other improvements installed in the Leased Premises by or on behalf of the Tenant including the Tenant's Work. -8- (b) If the Landlord rebuilds, repairs, or restores the Building or the Leased Premises as contemplated in Article 5.08 it will not be required to reproduce exactly the Leased Premises or the Building or restore the same to the exact condition that existed before the damage or destruction provided that it reproduces or restores or rebuilds the same to a comparable condition and configuration provided that the Tenant's premises can be reasonably accommodated in the reproduced or restored building and the Tenant's Rent shall be adjusted to the correct square footage. (c) The certificate of the Landlord's Architect in charge of the rebuilding, repair or restoration shall bind the Landlord and the Tenant as to the state and proportion of the suitability for occupancy of the Leased Premises and as to the date upon which the Landlord's work of reconstruction or restoration is completed and the Leased Premises fit for the purposes of the Tenant. 5.10 Condition of Expiration Upon the expiration of the Term the Tenant shall surrender and deliver up to the Landlord vacant possession of the Leased Premises, which Leased Premises at such time, unless the expiration of the Term has occurred pursuant to Article 5.08(1), shall be in the condition in which the same must be maintained during the Term pursuant to Articles 5.01 and 5.02 and as the same must otherwise be restored pursuant to Article 9.02. ARTICLE 6 Common Areas and Common Facilities 6.01 Tenant's Use of Parking Areas The Tenant, its employees, suppliers and other persons not licensees or invitees and having business with the Tenant shall be prohibited from using for parking of vehicles and loading or unloading of vehicles any part of the customer parking areas as such may be designed and changed from time to time by the Landlord. Tenant and employee parking shall be limited to specified times and places, arranged so as to cause minimal interference to business within the Development. If requested by the Landlord the Tenant shall supply its employees' automobile license numbers to the Landlord. Throughout the Term, the Tenant shall be provided with parking on the basis of three (3) stalls per 1,000 square feet of the Area of Leased Premises. The parking stalls shall be located on a random basis around the perimeter of the Building and shall be free of charge. Of the total allotment of parking stalls, twelve (12) shall be reserved exclusively for the Tenant's use with a portion of the reserved stalls being within close proximity to the front entrance of the Building and the remainder at the rear or side of the Building. Additional street parking is also available subject to applicable municipal by-laws. 6.02 Landlord's Right to Remove Vehicles Should the Tenant, its employees, suppliers or other persons not licensees or invitees of the Tenant park vehicles in areas not allocated for that purpose and the prohibition of the use of which is posted, the Landlord shall have the right to remove the said trespassing vehicles and the Tenant will save harmless the Landlord from any and all damages arising therefrom and the Tenant will pay the costs of such removal excluding damage resulting from negligence or misconduct by the Landlord. 6.03 Control of Common Areas and Common Facilities The Landlord shall at all times have exclusive control and management of the Common Areas and the Common Facilities. Such control applies to signs, use of show windows, and the Tenant's publicity visible from the Common Areas, as well as to the use made by the Tenant and/or the public of the Common Areas. The Landlord shall have the right to alter, vary, designate and redesignate the Common Areas and the Common -9- Facilities from time to time and to interfere with the use of the Common Areas and the Common Facilities to the extent necessary to make such alterations or variations or any other repairs required or permitted to be made by the Landlord under this Lease. 6.04 Merchandise on Common Area In particular, but without in any way limiting the generality of the provisions of Article 6.03, the Tenant shall not keep, display, or sell any merchandise on or otherwise obstruct or use any part of the Common Areas on the Common Facilities, except as permitted by the Landlord and except for displays included in Development promotions when recognized and permitted by the Landlord. 6.05 Customer Parking The Landlord shall at all times during the Term maintain for the benefit of licensees and invitees of the Tenant parking facilities. ARTICLE 7 Assignment and Sub-Letting 7.01 Prohibitions The Tenant shall not assign or transfer this Lease or the Term or any portion thereof or let or sub-let all or any part of the Leased Premises or grant any license with respect thereto (any of the foregoing being hereinafter called a "Transfer") without the written consent of the Landlord first had and obtained, which consent shall not be unreasonably withheld, provided that it shall not be unreasonable for the Landlord to withhold its consent where the Tenant is assigning or subletting at a profit to the Tenant, unless all profit above Tenant's leasing expenses and inducements shall be paid directly to the Landlord. All requests to the Landlord for consent to any Transfer shall be made to the Landlord in writing together with payment to the Landlord of one hundred dollars ($100.00) as a deposit on account of all costs incurred by the Landlord in considering and processing the request for consent and such information in writing as the Landlord might reasonably require respecting a transferee including, without limiting the generality of the foregoing, the name, address, business experience, financial position and banking and personal references of such transferee, and in the event the transferee is a corporation, similar information respecting the corporation and its principal shareholders, officers and directors. In addition, the request shall contain a comprehensive summary of the terms and conditions upon which the Transfer is to occur. Notwithstanding any provisions of this Article 7.01 to the contrary, after the Landlord receives such request and information in writing, it shall have the option, to be exercised by written notice within thirty (30) days after the receipt of such request and information, to terminate this Lease and the Term hereof with respect to the portion of the Leased Premises which is the subject of the Transfer or alternatively to take an assignment of the Transfer from the Tenant (to the effect that the Tenant shall surrender to the Landlord such portion of the Leased Premises and the Landlord shall thereafter have the right to lease the same directly to the proposed assignee or subtenant) on not less than thirty (30) days and not more than ninety (90) days notice to the Tenant. If the Landlord elects to terminate this Lease as aforesaid, the Tenant shall have the right, to be exercised by written notice to the landlord within ten (10) days after receipt of such notice of termination, to withdraw the request for consent to the proposed Transfer, in which case the Tenant shall not proceed with such Transfer, the notice of termination shall be null and void and this Lease shall continue in full force and effect in accordance with its terms. If the Landlord consents to a Transfer, the Landlord shall have the following rights: (a) to require the Tenant to enter into an agreement in writing and under seal to implement all amendments to the Lease to give effect to the Landlord's exercise of its foregoing rights; and (b) to require the Transferee to enter into an agreement directly with the Landlord to perform and observe all the terms and conditions of the Tenant pursuant to this Lease. Whether or not the Landlord consents to any request to Transfer, the Tenant shall pay reasonable costs incurred by the Landlord in considering any request for consent to Transfer and in completing any of the documentation involved in implementing such Transfer. PROVIDED FURTHER that, notwithstanding any other provisions of this Article 7.01 to the contrary, neither the Transfer nor the taking of any documentation in relation thereto shall affect the obligation of the Tenant to perform and observe all of the terms and conditions in this Lease to be observed and performed by the Tenant. -10- 7.02 Control of Corporation If the Tenant is a corporation, other than a corporation the shares of which are listed on any recognized stock exchange, effective control of the corporation shall not be changed directly or indirectly by a sale, encumbrance or other disposition of shares or otherwise howsoever without first obtaining the written consent of the Landlord which consent shall not be unreasonably withheld or delayed; provided that the Landlord's consent shall not be required for any sale or other disposition of shares by present shareholders to and between themselves or in the event of any transmission of shares on death and provided further that the Landlord's consent shall not be unreasonably withheld where control of the Tenant is to pass to a subsidiary or parent of the Tenant. Notwithstanding the foregoing, the Landlord's consent Shall not be required (but the Tenant shall provide the Landlord with notice at the time thereof or as soon as reasonably possible thereafter) in the case of a bona ride corporate reorganization. 7.03 Assignment by Landlord The Landlord may assign all or a part of its interest in this Lease without the Tenant's knowledge or consent. ARTICLE 8 Insurance 8.01 Tenant to Insure The Tenant, at its sole cost and expense, shall take out and keep in force during the Term, standard fire and extended coverage, and malicious damage insurance on the stock-in-trade, furniture, fixtures, glass, improvements and all other contents of the Leased Premises to their full replacement value, and comprehensive general liability insurance in an amount of not less than five million dollars ($5,000,000) and tenant's fire legal liability insurance all in amounts and with policies in a form satisfactory to the Landlord with insurers acceptable to the Landlord, acting reasonably. The comprehensive general liability policy shall name the Landlord as an additional insured as its interest may appear and such comprehensive public liability insurance shall contain a provision for cross liability as between the Landlord and the Tenant. Each policy other than public liability policies shall provide that the insurer shall not have any right of subrogation against the Landlord, its servants, agents or employees on account of any loss or damage covered by such insurance or on account of payments made to discharge claims against or liabilities of the Landlord or Tenant covered by such insurance. The cost or premium for each and every such policy shall be paid by the Tenant. The Tenant shall use commercially reasonable efforts to obtain from the insurers under such policies, undertakings to notify the Landlord in writing at least thirty (30) days prior to any cancellation or reduction in coverage thereof. If the Tenant fails to take out or keep in force, or provide to the Landlord proof, as hereafter contemplated, of such insurance, the Landlord shall have the right to place such insurance on behalf of the Tenant and to pay the premium therefor and in such event, the Tenant shall repay to the Landlord the amount paid therefor, which repayment shall be deemed to be Additional Rent payable on the first day of the next month following the said payment by the Landlord The Tenant agrees to provide the Landlord with current copies of the insurance policies or certificates of insurance as described herein. 8.02 Not to Affect Landlord's Insurance The Tenant will not upon the Leased Premises do or permit to be done, or omit to do anything which causes or has the effect of causing the rate of insurance upon the Development or any part thereof to be increased and if the insurance rate shall be thereby increased by any action of the Tenant, the Tenant shall pay to the Landlord on demand as Additional Rent the amount by which the insurance premiums shall be so increased. The Tenant will not store or permit to be stored upon or in the Leased Premises anything of a dangerous, inflammable or explosive nature nor anything which would have the effect of increasing the Landlord's insurance costs or of leading to the cancellation of such insurance. It is agreed that if any insurance policy upon the Leased Premises shall be cancelled by the insurer by reason of the use and occupation of the Leased Premises or any part thereof by the Tenant or by any assignee, sub-tenant, concessionaire or licensee of the Tenant, or by anyone permitted by the Tenant to be upon the Leased Premises, the Landlord may, at its option, forthwith enter upon the Leased Premises and rectify the situation causing such cancellation or rate increase, and the Tenant shall forthwith on demand pay to the Landlord the costs of the Landlord related to such rectification together with a supervisory fee of twenty (20%) percent of such cost and with interest on the aggregate of the foregoing from the date funds were expended by the Landlord. 8.03 Landlord to Insure The Landlord shall throughout the Term, carry fire insurance with normal coverage endorsements in respect of the buildings and improvements forming part of the Development (but excluding the Tenant's trade fixtures, merchandise, stock-in-trade, furniture or any other improvements installed in the Leased Premises by or on behalf of the Tenant including the Tenant's Work) in an amount not less than ninety (90) -11- percent of the full replacement cost (excluding the cost of foundations, footings, underground utilities and architects and other fees associated with these items) from time to time, on a stated amount basis, provided that such insurance, without further consent or notice to the Tenant, may have a deductible amount, provided that such deductible amount shall not exceed three (3%) percent of the amount insured under such policy or policies. The Landlord may, but shall not be obligated to, carry such other insurance including public liability insurance and rental loss insurance related to the Lands or such risks and perils in relation thereto or the Landlord's interest derived therein as the Landlord may so determine. All such insurance so obtained by the Landlord shall be for the sole benefit of the Landlord and the Tenant shall be entitled to no interest therein or benefit thereof. ARTICLE 9 Tenant Alterations 9.01 Painting, Decorating and Alterations The Tenant may, provided it first obtains the consent of the Landlord, such consent not to be unreasonably withheld, at any time and from time to time at its expense, paint and decorate, in accordance with the manner and standard referred to in Article 5.01, the interior of the Leased Premises and make such changes, alterations, additions and improvements in and to the Leased Premises as will in the judgment of the Tenant better adapt the Leased Premises for the purposes of its business; provided, however, that no changes, alterations, additions or improvements to the structure, any perimeter wall, the sprinkler system, the heating, ventilating, air conditioning, plumbing, electrical or mechanical equipment or the concrete floor or the roof shall be made without the prior written consent of the Landlord, not to be unreasonably withheld, and without the use of contractors or other qualified workmen approved by the Landlord. All changes, alterations, additions and improvements, whether structural or otherwise, shall be carried out in accordance with the reasonable requirements or rules of the Landlord and shall comply with all applicable statutes, regulations or by-laws of any municipal, provincial or other governmental authority. As part of the process of the Landlord's examination and approval of the Tenant's plans and specifications, materials may, in addition to being submitted to the Landlord's Architect, be submitted by the Landlord to other architects, engineers, and special consultants, and progress and completion of the work may require supervision and/or inspection by the Landlord or any of the foregoing persons on behalf of the Landlord. At the Tenant's option, the Landlord will advise the Tenant at such time as to which leasehold improvements will be required to be removed at the end of the Term. Any fees and costs incurred by the Landlord in relation to the foregoing will be paid by the Tenant to the Landlord within fifteen (15) days of billing. .The Tenant shall pay to the Landlord the amount of the increase for any insurance coverage of the Landlord directly attributable to any action by the Tenant as hereinbefore in this Article 9.01 provided and the Tenant covenants that such insurance shall not thereby be made liable to avoidance or cancellation by the insurer by reason of such changes, alterations, additions or improvements. 9.02 Landlord's Property At the expiration of the Term all changes, alterations, additions and improvements made to or installed upon or in the Leased Premises whether made pursuant to this Article 9 of otherwise and which in any manner are attached in, to on or under the floors, walls or ceilings (other than unattached movable trade fixtures) shall remain upon and be surrendered to the Landlord with the Leased Premises as part thereof, without disturbance, molestation or injury and shall be and become the absolute property of the Landlord without any payment or indemnity by the Landlord or any third party to the Tenant or any other party. Notwithstanding the foregoing provisions of this Article 9.02, unless the Lease has been terminated pursuant to Article 5.08(a) the Landlord may by notice in writing require the Tenant to remove the aforesaid changes, alterations, additions and improvements in whole or in part, which the Landlord in accordance with Article 9.01 has previously advised the Tenant will be required to be removed, in which event the Tenant shall remove the same and restore to the extent so requested that Leased Premises to the state in which they were prior to the commencement of any of the Tenant's Work and shall make good any damage or injury caused to the Leased Premises resulting from such installation and removal, reasonable wear and tear and the Landlord's repair obligations only excepted. The obligations of the Tenant under this Article 9.02 shall survive the expiration of the Term. 9.03 Prohibitions The Tenant, its employees, agents and representatives, are expressly prohibited from entering upon the roof of the Building or any Other Buildings for any reason whatsoever. The Tenant shall not make any repairs, openings or additions to any part of the exterior of the Leased Premises, nor place any attachments, decorations, signs or displays in or upon any Common Area or the exterior of the Leased Premises failing which the Tenant will be held responsible for all ensuing costs and damages whether to remove such items or to effect repairs needed as a result of such acts and shall pay the cost thereof to the Landlord forthwith on demand together with a supervisory fee to the Landlord of twenty (20%) percent of such cost as well as interest on the aggregate of the foregoing from the date funds are so expended by the Landlord. -12- 9.04 No Liens The Tenant covenants with the Landlord that it will not permit, do, or cause anything to be done to the Leased Premises during the period of construction and fixturing of the Leased Premises or at any time which would allow any lien, lis pendens, judgment or certificate of any court or any mortgage, charge or encumbrance of any nature whatsoever to be imposed or to remain upon the Leased Premises or the Development. In the event of the registration of any lien or other encumbrance as aforesaid, the Tenant shall at its own expense immediately cause the same to be discharged. Should the Tenant fail to discharge such lien or encumbrance within seven (7) business days of notice from the Landlord so to do, the Landlord shall be at liberty to pay and discharge such lien or encumbrance and any amount so paid by the Landlord together with any disbursements and costs incurred by the Landlord on a solicitor-client basis together with interest on any such amounts from the date of expenditure of such funds by the Landlord shall be paid by the Tenant to the Landlord forthwith. ARTICLE 10 Public Utilities and Taxes 10.01 Public Utilities, Business Tax and Machinery Tax The Tenant shall pay and discharge as the same fall due all charges for utilities provided to or consumed on the Leased Premises during the Term including telephone installations, water, electrical power, gas and telephone charges metered separately or charged separately by the authority providing the same to the Leased Premises as well as any charges of any such authority based thereon for treatment or other facilities and all other charges similar in nature, and shall also pay and discharge as the same fall due all business taxes and rates, floor space and personal property taxes, licence fees or similar fees which may be imposed by any municipal, legislative or other authority in respect of the use or occupancy of the Leased Premises or any personal property situate thereon or in respect of any fixtures, machinery, equipment or apparatus installed in the Leased Premises (or elsewhere in the Development by the Tenant). PROVIDED ALWAYS that if any of the aforesaid utilities are provided to the Leased Premises through a common metering device or on any other shared basis with any other premises or portions of the Building or the Development, the Tenant shall pay to the Landlord forthwith on demand, from time to time by the Landlord, the Tenant's, share of the cost thereof based on such allocation as the Landlord may reasonably determine in relation to the other premises or portions of the Building or the Development being so served. 10.02 Payment of Real Property Taxes by Landlord The Landlord shall, without derogating from any of the Tenant's obligations with respect to payment of Additional Rent, pay or cause to be paid when due to the municipality or other taxing authorities having jurisdiction all Real Property Taxes, PROVIDED ALWAYS that the Landlord may postpone such payment to the extent permitted by law if pursuing in good faith any appeal against the imposition thereof but the Tenant shall not be charged with any interest penalties caused by the Landlord's delay in payment. 10.03 Increase in Real Property Taxes Attributable to Tenant The Tenant shall from time to time if requested by the Landlord, pay to the Landlord forthwith on demand by the Landlord, an amount equal to any increase in the amount of Real Property Taxes by reason of any installation, alteration, or use made in or to the Leased Premises by or for the benefit of the Tenant or any party claiming by or through the Tenant. 10.04 Goods and Services Tax Despite any other section or clause of this Lease, the Tenant shall pay to the Landlord upon demand an amount equal to any and all Goods and Services Tax, it being the intention of the parties that the Landlord shall be fully reimbursed by the Tenant with respect to any and all Goods and Services Tax at the full tax rate applicable from time to time in respect of the Rent payable for the lease of the Leased Premises pursuant to this Lease. The amount of the Goods and Services Tax so payable by the Tenant shall be calculated by the Landlord in accordance with the applicable legislation and shall be paid to the Landlord at the same time as the amounts to which such Goods and Services Tax apply and is payable to the Landlord under the terms of this Lease or upon demand at such other time or times as the Landlord from time to time determines. Despite any other section or clause in this Lease, the amount payable by the Tenant under this paragraph shall be deemed not to be Rent, but the Landlord shall have all of the same remedies for and rights of recovery of such amount as it has for recovery of Rent under this Lease. As referred to herein "Goods and Services Tax" means the tax imposed under part IX of the Excise Tax Act (Canada) or any similar tax hereafter imposed in substitution therefor or in addition thereto. -13- ARTICLE 11 Exclusion of Liability and Indemnity 11.01 Exclusion of Liability It is agreed between the Landlord and the Tenant that: (a) the Landlord, its agents, servants and employees shall not be liable for damage or injury to any property of the Tenant which is entrusted to the care or control of the Landlord, its agents, servants or employees; (b) the Landlord, its agents, servants and employees shall not be liable nor responsible in any way for any personal or consequential injury of any nature whatsoever that may be suffered or sustained by the Tenant or any employee, agent, customer, invitee or licensee of the Tenant or any other person who may be upon the Leased Premises or the Development or for any loss of or damage or injury to any property belonging to the Tenant or to its employees or to any other person while such property is on the Leased Premises or the Development and, in particular (without limiting the generality of the foregoing) the Landlord shall not be liable for any damage or damages of any nature whatsoever to any such property caused by the failure by reason of a breakdown or other cause, to supply adequate drainage, snow or ice removal, or by reason of the interruption of any public utility of service or in the event that steam water, rain or snow may leak into, issue or flow from any part of the Development or from the water, steam, sprinkler, or drainage pipes or plumbing works the same, or from another place or quarter or for any damage caused by any thing done or omitted by any tenant, but the Landlord shall, after notice of the same and where it is within its obligation so to do, use all reasonable diligence to remedy such condition, failure or interruption of service when not directly or indirectly attributable to the Tenant, and the Tenant shall not be entitled to any abatement of Rent in respect of any such condition, failure or interruption of service; and (c) the Landlord, its agents, servants, employees or contractors shall not be liable for any damage suffered to the Leased Premises or the contents thereof by reason of the Landlord, its agents, servants, employees or contractors entering upon the Leased Premises to undertake any examination thereof or any work therein or in the case of an emergency. -14- 11.03 Mutual Waiver of Subrogation and Indemnity The Landlord and the Tenant confirm and acknowledge that it is their intent that any loss, damage or expense to which either party may be put (in this Article 11.03, the "Injured Party") as a result of the act, omission or negligence of the other party (in this Article 11.03, the "Offending Party") shall be recoverable from the Offending Party, but only to the extent that the Injured Party cannot recover its loss, damage or expense under policies of insurance which it is required to take out or has in fact taken out hereunder. To such end, the parties covenant and agree with each other as follows: (a) to the extent obtainable, each party will ensure that all relevant policies of insurance taken out hereunder will contain a waiver of subrogation rights which such party's insurer may have against the other party hereunder and those for whom the other party is in law responsible, whether or not any loss, damage or expense is caused by the act, omission or negligence of such other party or those for whom the other party is in law responsible; (b) the Offending Party shall indemnify the Injured Party and save it harmless from and against any and all loss, damage and expense whatsoever arising out of the act, omission or negligence of the Offending Party or those for whom the Offending Party is in law responsible; and (c) notwithstanding the indemnity contained in (b) above, the Injured Party covenants and agrees to look first to its own policies of insurance taken out or required to be taken out hereunder to recover any loss, damage or expense to which the foregoing indemnity may apply (it being understood and agreed that the foregoing indemnity shall not apply to, and the Offending Party shall have no responsibility for, any loss, damage or expense against which the Injured Party is required hereunder to take out insurance or has in fact taken out insurance). ARTICLE 12 Landlord's Rights and Remedies 12.01 Default If and whenever: (a) the Rent hereby reserved, or any part thereof, be not paid when due, or there is non payment of any other sum which the Tenant is obligated to pay under any provisions hereof, and such default shall continue for ten (10) days after written notice by the Landlord requiring the Tenant to rectify the same; (b) the Term on a material number of the goods, chattels, equipment or other personal property of the Tenant, shall be taken or be exigible in execution or attachment, or if a writ of execution shall issue against the Tenant; (c) the Tenant shall become insolvent or commit any act of bankruptcy or become bankrupt or take the benefit of any Act that maybe in force for bankrupt or insolvent debtors, or become involved in a winding-up proceeding, voluntary or otherwise, or if a receiver shall be appointed for the business property, affairs or revenues of the Tenant, or if any governmental authority should take possession of the business or property of the Tenant; (d) the Tenant shall fail to commence business actively and diligently from and on the Leased Premises within sixty (60) days after the Commencement Date; (e) the Tenant shall make a bulk sale of its goods; (f) the Tenant shall abandon the Leased Premises in whole or in part; -15- (g) this Lease is transferred in violation of the provisions of Article 7; (h) the Tenant shall fail to remedy any condition giving rise to cancellation, threatened cancellation, reduction or threatened reduction of any insurance policy on the Development or any part thereof within the lesser of three (3) days or the effective date of the cancellation of insurance after notice thereof by the Landlord; or (i) the Tenant shall not observe, perform and keep any other of the covenants, agreements, provisions, stipulations and conditions herein to be observed, performed and kept by the Tenant and shall persist in such failure for ten (10) days after notice by the Landlord requiring that the Tenant remedy, correct, desist or comply (or in the case of any such breach which reasonably would require more than ten (10) days to rectify unless the Tenant shall commence rectification within the said ten (10) day period and thereafter promptly and diligently and continuously proceed with the rectification of the breach); then and in any of such cases at the option of the Landlord, the full amount of the current month's and the next ensuing three (3) month's Rent shall immediately become due and payable as Additional Rent and the Landlord may immediately distrain for the same, together with any arrears then unpaid; and the Landlord may without notice or any form of legal process forthwith re-enter upon and take possession of the Leased Premises or any part thereof in the name of the whole and remove and sell the Tenant's goods, chattels, equipment and any other property therefrom, any rule of law or equity to the contrary notwithstanding; and the Landlord may seize and sell such goods, chattels, equipment and other property of the Tenant as are in the Leased Premises or at any place to which the Tenant or any other person may have removed them in the same manner as if they had remained and been distrained upon the Leased Premises; and such sale may be effected in the discretion of the Landlord either by public auction or by private treaty, and either in bulk or by individual item, or partly by one means and partly by another, all as the Landlord in its entire discretion may decide, and the Tenant waives and renounces the benefit of any present or future statute or amendments thereto taking away or limiting the Landlord's right of distress. 12.02 Consequences of Default If and whenever the Landlord is entitled to re-enter the Leased Premises, the Landlord may terminate this Lease and the Term by giving written notice of termination to the Tenant or by posting notice of termination in the Leased Premises, and in such event the Tenant will forthwith vacate and surrender the Leased Premises. Alternatively, the Landlord may from time to time without terminating the Tenant's obligations under this Lease, make alterations and repairs considered by the Landlord necessary to facilitate a sub-letting and sub-let the Leased Premises or any part thereof as agent of the Tenant for such term or terms and at such rent or rents and upon such other terms and conditions as the Landlord in its sole discretion considers advisable. Upon each subletting all rent and other monies received by the Landlord from the sub-letting shall be applied first to the payment of indebtedness other than Rent due hereunder from the Tenant to the Landlord, second to the payment of costs and expenses of the sub-letting including brokerage fees and solicitors fees and the cost of alterations and repairs, and third to the payment of Rent due and unpaid hereunder. The residue, if any, shall be held by the Landlord and applied in payment of future Rent as it becomes due and payable. If the Rent received from the subletting during a month and any surplus then held by the Landlord to the credit of the Tenant is less than the Rent to be paid during that month by the Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will be calculated and paid monthly. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that termination is given to the Tenant or posted as aforesaid. Despite a subletting without termination, the Landlord may elect at any time to terminate this Lease for a previous breach. If the Landlord so terminates this Lease, the Tenant shall pay to the Landlord on demand therefor: (a) Basic Rent and Additional Rent accrued due up to the time of re-entry or termination, whichever is later, plus the next three (3) months' Rent payable as Additional Rent as provided in Article 12.01; (b) all costs payable by the Tenant pursuant to the provisions of this Lease up until the date of re-entry or termination, whichever is later; (c) such expenses as the Landlord may incur or has incurred in connection with re-entering or terminating and re-letting, or collecting sums due or payable by the Tenant or realizing upon assets seized including brokerage expenses, legal fees and disbursements determined on a full indemnity basis, and including the expense of keeping the Leased Premises in good order and repairing or maintaining the same or preparing the Leased Premises for re-letting; and (d) as liquidated damages for the loss of Rent and other income of the Landlord expected to be derived from this Lease during the period which would have constituted the unexpired portion of the Term had the Lease not been so terminated, the amount, if any, by which the rental value of the Leased Premises for such period established by -16- reference to the terms and provisions of this Lease exceeds the rental value of the Leased Premises for such period established by reference to the terms and provisions upon which the Landlord relets them, if such re-letting is accomplished within a reasonable time after termination of this Lease, and otherwise with reference to all market and other relevant circumstances. Rental value is to be computed in each case by reducing to present worth at an assumed interest rate of ten percent (10%) per annum all Rent and other amounts to become payable for such period and where the ascertainment of amounts to become payable requires the same, the Landlord may make estimates and assumptions of fact which will govern unless shown to be unreasonable or erroneous; such obligations of the Tenant to survive the expiration of the Term. 12.03 Non-Waiver The failure of the Landlord to insist in any one or more cases upon the strict performance of any of the covenants of this Lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for the future of such covenant or option and the acceptance of Rent by the Landlord with knowledge of the breach by the Tenant of any covenants or conditions of this Lease shall not be deemed to be a waiver of such breach and no waiver by the Landlord of any provisions of this Lease shall be deemed to have been made unless expressed in writing by the Landlord. 12.04 Right of Landlord to Perform Tenant's Covenants If at any time and so often as the same shall happen, the Tenant shall make default in the observance or performance of any of the Tenant's covenants herein contained beyond applicable periods of time to cure the default, then the Landlord may, but shall not be obligated to, without waiving or releasing the Tenant from its obligations under the terms of this Lease, itself observe and perform the covenant or covenants in respect of which the Tenant is in default, and in that connection may pay such monies as may be required or as the Landlord may reasonably deem expedient, and the Landlord may thereupon charge all monies so paid and expended by it to the Tenant together with interest thereon from the date upon which the Landlord shall have paid out the same; provided however that if the Landlord commences and completes either the performance of any such covenant or covenants or any part thereof, the Landlord shall not be obliged to complete such performance or be later obliged to act in like fashion. 12.05 Time for Payment and Legal Cost Unless otherwise expressly provided in this Lease, all reasonable sums and costs paid by the Landlord including costs paid between solicitor and client, on account of any default by the Tenant under this Lease, shall be payable to the Landlord by the Tenant forthwith, with interest thereon at the rate aforesaid from date of payment of such sums or costs by the Landlord. Unless otherwise expressly provided in the Lease, all amounts (other than Rent) required to be paid by the Tenant to the Landlord pursuant to this Lease shall be payable on demand at the place designated by the Landlord for payment of Rent and if not so paid within ten (10) days of such demand shall be treated as Rent in arrears and the Landlord may, in addition to any other remedy it may have for the recovery of the same, distrain for the amount thereof as Rent in arrears. 12.06 Remedies Cumulative All rights and remedies of the Landlord in this Lease contained shall be cumulative and not alternative and are not dependent the one on the other and mention of any particular remedy or remedies of the Landlord in respect of any default by the Tenant shall not preclude the Landlord from any other remedy in respect thereof, whether available at law or in equity or as expressly provided for herein. ARTICLE 13 Mortgages and Assignment by Landlord 13.01 Sale or Financing of Development The Landlord may sell, transfer, lease, mortgage, encumber or otherwise dispose of the Development or any portion thereof or any interest of the Landlord therein, in every case without the consent of the Tenant, and the rights of the Landlord under this Lease may be mortgaged, charged, transferred or assigned in conjunction therewith. The Tenant acknowledges that in the event of the sale or lease by the Landlord of the lands or a portion thereof containing the Leased Premises or the assignment by the Landlord of this Lease or of any interest of the Landlord hereunder, to the extent that any such purchaser, lessee or assignee has assumed the covenants and obligations of the Landlord hereunder, the Landlord shall, without further written agreement, be -17- freed and relieved of liability upon such covenants and obligations except for the Allowance to be paid to the Tenant under the provisions of Article 20.07 hereof, for which the Landlord shall still remain liable. 13.02 Subordination and Acknowledgment This Lease shall at the option of the Landlord or the mortgagee under any mortgage now or hereafter existing affecting the Development, exercisable at any time and from time to time by the Landlord or such mortgagee, be either subject and subordinate to such mortgage and accordingly not binding upon such mortgagee or alternatively rank prior to such mortgage and accordingly be binding upon such mortgagee. On request at any time and from time to time of the Landlord or such mortgagee, the Tenant shall either postpone and subordinate this Lease or any caveat based thereon to such mortgage with the intent and effect that this Lease and all rights of the Tenant shall be subject to the rights of such mortgagee as fully as if the mortgage (regardless of when made) had been made prior to the making of this Lease, or alternatively to attorn to such mortgagee and become bound to it as its tenant of the Leased Premises for the then expired residue of the Term and upon the terms and conditions contained in this Lease, in each case as the Landlord or such mortgagee may require. Without limiting the foregoing (and notwithstanding that any previous attornment or subordination in favour of such mortgagee shall have been given) the Tenant shall execute promptly the appropriate instrument or postponement and subordination or alternatively the appropriate instrument of attornment, as the case may be, in order to give effect to the foregoing. Any reasonable legal fees incurred by the Tenant with respect to the execution of such instruments shall be paid by the Landlord. The Landlord shall obtain a non-disturbance agreement from any mortgagee or other encumbrancer of the Building who has, or may in the future have, priority to the Tenant's leasehold interest in the Building. Such non-disturbance agreement shall provide that, notwithstanding the exercise of any rights by any such mortgagee or other encumbrancer, so long as the Tenant is not then in default the Tenant shall be entitled to remain undisturbed in its possession of the Leased Premises, subject to the terms and conditions of this Lease. Notwithstanding the foregoing provisions of this Article 13.02, the Tenant will not be required to subordinate or postpone the Lease nor to attorn to any mortgagee or encumbrancer unless the Landlord has obtained such a non-disturbance agreement. 13.03 Offset Statement Either party will, within ten (10) days following request therefor by the Landlord, from time to time, the Tenant shall execute and deliver to the Landlord and if required by the Landlord, to any mortgagee, assignee, or transferee of the Lease or the Development, a certificate in writing as to the then status of this Lease, including whether it is in full force and effect, as modified or unmodified, confirming the Rent payable hereunder, the state of accounts between the Landlord and the Tenant and the existence or non-existence of defaults and any other matters pertaining to the Lease which the Landlord shall request be included in such certificate. 13.04 Registration The Tenant may, at the Tenant's cost with the consent of the Landlord, such consent not to be unreasonably withheld, register a short form of Lease against title to the Lands, the content of which shall be mutually agreed upon and shall exclude any "business terms." The Tenant will, at the cost and expense of the Tenant, cause this Lease to be registered in the appropriate Land Title Office in the Province of British Columbia upon the request of the Landlord in the event that the Landlord requires the same to be registered in priority to any mortgage, trust deed or trust indenture which may now or at any time hereafter affect in whole or in part the Leased Premises or the Development and the Tenant shall execute promptly any certificate or other instrument which may from time to time be requested by the Landlord to give effect to the provisions of this Article 13.04. ARTICLE 14 Overholding Tenant 14.01 No Tacit Renewal In the event the Tenant remains in possession of the Leased Premises after the end of the Term and without the execution and delivery of a new lease, there shall be no tacit renewal of this Lease and the Term hereby granted and the Tenant shall be deemed to be occupying the Leased Premises as a Tenant from month to month on the terms and conditions contained herein except that the Basic Rent shall be one hundred and fifty percent (150%) of the monthly instalment of Basic Rent required to be paid pursuant to this Lease in the immediately preceding Year of the Term, but otherwise on the terms and conditions of this Lease which shall be read with such changes as are appropriate to a monthly tenancy; provided however that this provision shall not authorize the Tenant to so overhold where the Landlord has objected to such over holding or has required the Tenant to vacate the Leased Premises. -18- ARTICLE 15 Quiet Possession 15.01 Quiet Possession Upon the Tenant paying the Rent hereby reserved and all other charges herein provided and observing, performing and keeping the covenants and agreements herein contained, the Tenant shall and may peaceably possess and enjoy the Leased Premises for the Term granted without any interruption or disturbance from the Landlord or any person or persons lawfully claiming by, from or under it. ARTICLE 16 Legal Relationships 16.01 No Partnership Nothing contained in this Lease nor in any acts of the Landlord and Tenant pursuant to this Lease shall be deemed to create any relationship between the parties hereto other than the relationship of Landlord and Tenant, it being expressly provided that there is no intention to create a relationship of partners or a joint venture. 16.02 Joint and Several Liability Should the Tenant comprise two (2) or more persons, each of them, and not one for the other or others, shall be jointly and severally bound with the other or others for the due performance of the obligations of the Tenant hereunder. Where required by the context hereof the singular shall include the plural and the masculine gender shall include either the feminine or neuter genders, as the case may be and vice versa. 16.03 Successors and Assigns This Lease and everything herein contained shall enure to the benefit of and be binding upon the parties hereto, to successors and assigns of the Landlord, and the approved successors and assigns of the Tenant. ARTICLE 17 Notices 17.01 Notices Any notices herein provided or permitted to be given by the Tenant to the Landlord shall, except in the event of actual or threatened mail strike during which time all notices must be delivered, be sufficiently given if delivered or sent by registered mail, postage prepaid, posted within British Columbia addressed to the Landlord at: Bentall Property Management 3100 - Three Bentall Centre 595 Burrard Street P.O. Box 49001 Vancouver, B.C. V7X 1B1 or to such other address as might be designated in writing by the Landlord from time to time, and any notice herein provided or permitted to be given by the Landlord to the Tenant shall, except in the event of actual or threatened mail strike during which time all notices must be delivered, be sufficiently given if delivered or mailed, postage prepaid and posted within British Columbia, addressed to the Tenant at the Leased Premises. Notice given as aforesaid, posted in British Columbia, shall be conclusively deemed to have been given on the third business day following the day on which such notice was mailed, or if delivered, on the date of delivery. The Landlord may at any time given in writing to the Tenant of a change of address for the Landlord and from and after the giving of such notice the address therein specified shall be deemed to be the address of the Landlord for the giving of notice hereunder. The word "notice" in this Article 17.01 shall be deemed to include any request, statement, demand, or other writing in this Lease provided or permitted to be given by the Landlord to the Tenant or by the Tenant to the Landlord. -19- ARTICLE 18 General 18.01 Collateral Representations and Agreements The Tenant acknowledges that the Leased Premises are taken without representation of any kind on the part of the Landlord or its agent other than as set forth herein, that the plans attached as Schedule "A" set forth the general layout of the Building and shall not be deemed to be a representation or agreement of the Landlord that the Building will be exactly as indicated on such plans, and that nothing contained in the Lease shall be construed so as to prevent the Landlord from varying or altering the location or size of parking areas, driveways, sidewalks or from erecting additional buildings or extending buildings after the Commencement Date and without limiting the foregoing, the Landlord shall have the unrestricted right to add additional lands to the Development, which upon such addition, these additional lands will be included within the definition of the Lands and Development provided such addition does not substantially increase the amount of Development Operation and Maintenance Costs, Tax Cost, HVAC Costs and Building Operation and Maintenance Costs to be borne by the Tenant, to construct additional buildings from time to time on the Lands, add or change any building, or alter the ingress and egress to the Development and to change the loading or unloading facilities and service entrances from time to time without in any way being responsible to the Tenant, provided only that the Landlord shall at all times provide reasonable access to the Leased Premises across the Lands for the Tenant, its employees, suppliers, agents, licencees and invitees. Subject to the foregoing and to the obligations of the Landlord to maintain at all times adequate parking facilities, the Landlord may transfer or dispose of portions of the Lands to the owners of abutting property, or dedicate or transfer to the municipal authorities portions of the Lands for roadwidening and other purposes, and when and so often as the Landlord shall dispose or transfer or dedicate any portion of the Lands, then the reference herein to the Lands shall mean and refer to the portion of the Lands remaining after any such transfer, disposition or dedication together with any adjacent land which may be acquired by the Landlord on any such transfer, disposition or dedication. The Tenant further agrees that no representative of or agent of the Landlord is or shall be authorized or permitted to make any representation with reference to this Lease, or to vary or modify this Lease in any way, and that this Lease contains all the agreements and conditions made between the Landlord and the Tenant hereto respecting the Leased Premises other than for any provisions of the Agreement, if any, on which this Lease is based and which are specifically stated therein to survive the execution and delivery of this Lease. Any addition to or alteration of or change in this Lease or other agreements hereafter made or conditions created, to be binding, must be made in writing and signed by the Landlord and the Tenant. 18.02 Management of Development The Tenant acknowledges to the Landlord that the Development may be managed by such party or parties as the Landlord may in writing designate and to all intents and purposes the manager of the Development shall be the party at the Development authorized to deal with the Tenant on behalf of the Landlord. 18.03 Time of the Essence Time shall be of the essence of this Lease. 18.04 Unavoidable Delays In the event that either party shall be delayed, hindered or prevented from the performance of any covenant hereunder by Force Majeure, the performance of such covenant shall be excused for the period during which such performance is rendered impossible and the time for performance thereof shall be extended accordingly, but this shall not excuse the Tenant from the prompt payment of Rent or any other amount required to be paid by the Tenant under the provisions of this Lease. 18.05 Accord and Satisfaction No payment by the Tenant hereunder or receipt by the Landlord of a lesser amount than the payment of Basic Rent or Additional Rent or any other payments herein stipulated shall be deemed to be other than on account of the stipulated sum, nor shall any endorsement or statement on any cheque or any letter accompanying any cheque or payment be deemed an accord and satisfaction, and the Landlord may accept such cheque or payment without prejudice to the Landlord's right to recover the balance due or pursue any other remedy provided in this Lease. 18.06 Competition Act No provision of this Lease is intended to apply or to be enforceable to the extent that it might give rise to any offence under the Competition Act, RSC 1970 Chapter 23 or any statute that may be substituted therefor, as from time to time amended. -20- 18.07 Covenants Each of the terms and conditions of this Lease to be performed and observed by the Tenant or by the Landlord, as the case may be, is and shall be construed as a covenant of the party so required to perform and observe the same. 18.08 Consent or Approval of Landlord Wherever and whenever the consent, approval or permission of the Landlord is required by the Tenant pursuant to the terms of this Lease, and unless otherwise specifically provided, the Landlord shall have the right to withhold or grant such consent, approval or permission in its sole and arbitrary discretion. Such consent, approval or permission must be in writing to be effective, and such consent, approval or permissions must be obtained prior to the taking of the action to which the same refers. 18.09 For Lease Signs The Landlord shall have the right during the last six (6) months of the Term to place upon the Leased Premises, a notice of reasonable dimensions stating that the Leased Premises are for lease and the Tenant shall not obscure or remove such notice or permit the same to be obscured or removed. 18.10 The Commercial Tenancy Act Each of the Landlord and the Tenant waives any and all provisions of the Commercial Tenancy Act (British Columbia) or any statute that may be substituted therefore, as from time to time amended, to the extent that the same are inconsistent with or conflict with the terms and conditions of this Lease. 18.11 No Exclusivity This Lease shall not in any way be construed as giving to or conferring upon the Tenant any rights to carry on any business or undertaking in or from the Leased Premises to the exclusion of third parties in the Development. 18.12 Schedules Any and all schedules attached hereto are deemed to be incorporated into and form part hereof. 18.13 Applicable Law This Lease shall be governed by and construed in accordance with the laws in force in the Province of British Columbia. 18.14 Headings The index and headings in this Lease are inserted for convenience of reference only and shall not affect the construction of this Lease or any provision hereof. 18.15 Tenant's Acceptance The Tenant hereby accepts the Lease of the Leased Premises to be held by the Tenant, subject to the conditions, restrictions and covenants set forth herein. 18.16 Arbitration If at any time the parties herein are unable within the time specified, or if no time is specified, then within a reasonable time to reach agreement on any matter which is to be settled by mutual agreement, then such matter shall be submitted and referred to a single arbitrator pursuant to the Commercial Arbitration Act of British Columbia, whose decision shall be final and binding on the parties hereto. 18.17 Severability Should any provision of this Lease be unenforceable it shall be considered separate and severable from the remaining provision of this Lease, which shall remain in force and be binding as though the said provision had not been included. -21- ARTICLE 19 Definitions In this Lease, the following words, phrases and expressions are used with the meanings described as follows: 19.01 "Additional Rent" for a Lease Year or portion thereof means in addition to the Basic Rent all other amounts which shall become due and payable hereunder by the Tenant to the Landlord and includes the amounts which is the aggregate of: (i) the Tenant's Proportionate Share of the HVAC Costs, (ii) the Tenant's Proportionate Share of the Building Operation and Maintenance Costs, (iii) the Tenant's Proportionate Share of the Development Operation and Maintenance Costs, and (iv) the Tenant's Proportionate Share of the Tax Cost. In each case the items comprising or being deducted from the aforesaid Costs or Cost are to be allocated to such Lease Year by the Landlord in accordance with generally accepted accounting practice, provided that if the Term commences other than at the beginning of a Lease Year or ends other than at the conclusion of a Lease Year a prorate adjustment of the aforesaid costs for such Lease Year shall be made based on the length of the Term falling within such Lease Year, provided further that the Tax Cost shall, unless otherwise specifically stated in the enabling legislation giving rise thereto, be deemed to accrue equally from day to day in the calendar year to which the same related and shall, if adjustment is required as aforesaid, be adjusted on that basis and not on a straight pro rata basis as provided aforesaid. 19.02 "Area of Leased Premises" means the area of the Leased Premises measured by the Landlord's Architect following completion of the Tenant's Work or any subsequent construction by the Tenant predominately in accordance with the then current standard for floor measurement as established by the Building Owners and Managers Association (BOMA) modified in order to take into account unique characteristics of the Building such as sharing of the main floor showers and locker rooms and other Common Areas which benefit all other tenants within the Building. The Landlord shall provide the Tenant with a summary detailing calculations of the Area of Leased Premises. The Area of Leased Premises when and if it is certified by the Landlord's Architect will apply instead of the area set forth in Basic Term .O1 and Rent will be adjusted in accordance with the revised Area of Leased Premises, which adjustment will be retroactive if the certification does not occur until after the Commencement Date. 19.03 "Basic Rent" means the annual rent payable by the Tenant to the Landlord in accordance with Article 2.01 for each Year of the Term, being the amount set forth in Basic Term .02. 19.04 "Basic Term" means each of those terms defined as such at the commencement of this Lease. 19.05 "Building" means the building in which the Leased Premises are located as shown on Schedule "A" hereto. 19.06 "Building Operation and Maintenance Costs" means all of the Landlord's costs, charges and expenses for operating, maintaining, managing, repairing (excluding repairs of a structural nature), rebuilding, inspecting, insuring, supervising and administering the Building including the Common Areas and Common Facilities of the Building, if any, and includes without limiting the generality of the foregoing: (a) the cost of lighting, heating, ventilating, air-conditioning and supplying water and other utilities to the Common Facilities and Common Areas, as aforesaid; cleaning and janitorial services relating to the Building; repairs and replacements to the Building other than structural repairs required to be carried out by the Landlord pursuant to Article 5.06(a) but including any changes made to the Building, unless structural in nature, required by any governmental or other agencies which regulate the operation of the Development, insurance premiums for any insurance required or permitted to be carried by the Landlord pursuant to the terms of this Lease and related only to the Building; (b) and administration fee to the Landlord equal to fifteen (15%) percent of the aggregate of the aforesaid costs, charges and expenses; and (c) amortization, at rates determined by the Landlord, but not to exceed the maximum permitted to the Landlord under the provisions of the Income Tax Act, Canada, from time to time or any legislation substituted therefore on the equipment and -22- machinery employed in operating or maintaining repairing or replacing the Common Areas or the Common Facilities of the Building, if any, and a carrying cost at the rate of two (2%) percent above prime, from time to time, of the Canadian chartered bank designated by the Landlord on the undepreciated portion of the costs of such equipment and machinery; and there shall be excluded from such costs the following: (i) payments of principal and interest under any mortgage or mortgages on the Development; (ii) corporate, income, profits or excess profits taxes assessed upon the income of the Landlord; (iii) legal fees and disbursements incurred in enforcing the provisions of other leases of premises in the Building against other tenants or occupants; (iv) cost of marketing and leasing out premises in the building including tenant inducement packages; and (v) environmental remediation to the extent not caused by the Tenant or those for whom it is in law liable; and there shall be deducted from such costs the amount of proceeds actually recovered by the Landlord from insurance and relating to damage, the cost of repair of which was included in Building Operation and Maintenance Costs. 19.07 "Commencement Date" means November 1,1996. 19.08 "Common Areas" means those areas located either in the Building or on the Lands but not in any Other Building, that are not intended for lease and designated (which designation may be changed from time to time) by the Landlord as Common Areas set aside by the Landlord for the common or joint use and benefit of the Tenant, its employees, customers and other entities in common with others entitled to the use and benefit of such areas in the manner and for the purposes established or altered pursuant to the terms of this Lease. 19.09 "Common Facilities" means the electrical, heating, ventilating, air conditioning, plumbing and drainage equipment, any music and public address systems, installations and any enclosures constructed therefor, fountains, service rooms, customer and service stairways, escalators, signs, lamps, standards, public washroom facilities and all other facilities which are provided and designated (and which designation may be changed from time to time) by the Landlord for the common or joint use and benefit of the occupants of the Development. 19.10 "Development" means the Lands, Buildings, Other Buildings and all buildings and improvements existing on the Lands from time to time. 19.11 "Development Operation and Maintenance Costs" means all of the Landlord's costs, charges and expenses of operating, maintaining, managing, repairing, rebuilding, inspecting, insuring, supervising and administering the Development, other than the Building or any Other Building, including the Common Areas and the Common Facilities and include without limiting the generality of the foregoing: (a) the cost of lighting, heating, ventilating, air-conditioning and supplying water and other utilities to the Common Areas and Common Facilities; cleaning, janitorial services, snow and ice removal, striping or repairing parking areas; supervising, policing and security; painting, planting or landscaping; operating and maintaining the garbage compaction equipment, if any; the cost of maintaining, repairing, replacing or leasing the pylon signs and public address, intercom, music, and alarm systems; repairs and replacements to the Development, business taxes, place of business taxes and other taxes levied in respect thereof or fairly attributable to the Common Areas or the Common Facilities; insurance premiums for any insurance required or permitted to be carried by the Landlord pursuant to the terms of this Lease other than for the Building or any Other Building; supplies, personnel wages and payroll expenses: (b) an administration fee to the Landlord equal to fifteen (15%) percent of the aggregate of the aforesaid costs, charges and expenses; and (c) amortization, at rates determined by the Landlord, but not to exceed the maximum permitted to the Landlord under the provisions of the Income Tax Act (Canada) from time to time or any legislation substituted therefor, on the equipment and -23- machinery employed in operating, maintaining, repairing or replacing the Common Areas or the Common Facilities and a carrying cost at the rate of two (2%) percent above prime, from time to time, of the Canadian chartered bank designated by the Landlord, on the undepreciated portion of the costs of such equipment and machinery; and there shall be excluded from such costs the following: (i) payments of principal and interest under any mortgage or mortgages on the development; (ii) corporate, income, profits or excess profits taxes assessed upon the income of the Landlord; (iii) Building Operation and Maintenance Costs; (iv) fines, penalties or like amounts payable by the Landlord as a consequence of its breach of any of its obligations under this Lease; and (v) costs of repairing damage to or destruction of tangible property which results from a failure by the Landlord to maintain the Development or any of its equipment, facilities or systems in a reasonable manner, consistent with quality management of similar buildings of similar size; and there shall be deducted from such costs the amount of proceeds actually recovered by the Landlord from insurance and relating to damage, the cost of repair of which was included in Development Operation and Maintenance costs. 19.12 "Force Majeure" means any cause beyond the control of the either party delaying, hindering or preventing the Landlord from performing any term, covenant or act required hereunder and, without limiting the generality of the foregoing, includes lock-outs (including lock-outs decreed or recommended for its members by a recognized contractors' association of which the Landlord is a member or to which the Landlord is otherwise bound), strikes, labour disputes, inability to procure materials or services, restrictive governmental laws or regulations, fire, act of God, riots, insurrection, sabotage, rebellion and war. 19.13 "Gross Leasable Area" means the aggregate floor area (expressed in square meters or square feet), from time to time, determined by the Landlord's Architect of all premises leased to or intended to be leased to tenants and located within the area to which the measurement is being applied. 19.14 "HVAC Costs" includes with respect to the Building: (a) all of the Landlord's costs, charges and expenses of operating, maintaining, managing, replacing, repairing and supervising the apparatus for heating, ventilating and air conditioning installed in the Building, from time to time, other than those part of such apparatus installed by or on behalf of the Tenant or any other tenant (the "HVAC System"); and (b) an administrative fee equal to fifteen (15%) percent of the total of the costs, charges and expenses incurred by the Landlord under the preceding provision of this definition; 19.15 "Landlord's Architect" means an architect or engineer from time to time selected by the Landlord for the purpose of making any certification or determination in accordance with the terms of this Lease. 19.16 "Landlord's Work" means the work specified in Schedule "B" hereto. 19.17 "Lands" means those lands located in the City of Richmond, in the Province of British Columbia legally described as: Lot 1 Parcel Identifier 012333433 Lot 2 Parcel Identifier 012333476 Lot 3 Parcel Identifier 012333506 All of Section 5, Block 4 North Range 5 West and Section 32, Block 5 North Range 5 West New Westminster District Plan 79650 19.18 "Lease" means this agreement, including any and all schedules attached hereto as the same may be amended from time to time. 19.19 "Lease Year" means each calendar year in which a portion of the Term falls, provided that the Landlord, if it deems the same convenient or necessary for its accounting purposes, may, from time to time, by notice to the Tenant alter the Lease Year to any other twelve (12) month period in which a portion of the Term -24- falls by specifying an annual date, being the first day of a calendar month, upon which a subsequent Lease Year is to commence and in such event the current Lease Year shall terminate on the day preceding the specified date. 19.20 "Lease Premises" means that portion of the Building outlined in red on Schedule "A" hereto, subject to such minor variations as may occur in the course of construction of the Building by the Landlord. 19.21 "Other Buildings" means any building or buildings existing on the Lands from time to time containing premises that are leased or intended to be leased to tenants, but excluding the Building. 19.22 "Permitted Use" means the use set forth in Basic Term .04. 19.23 "Prime rate" means the rate of interest expressed as an annual rate, at the relevant time or times, determined by the Toronto-Dominion Bank at its main branch in Vancouver, British Columbia, as a reference rate for commercial demand loans to its major commercial borrowers determined in Canadian dollars and made by such bank in Canada an adjusted from time to time. 19.24 "Real Property Taxes" means all general special, local improvement, school and other taxes, levies, rates and charges levied, assessed or imposed against the Development or any part thereof and all business taxes, assessments, rates and levies, including any corporation capital tax, levied, assessed or imposed on the Landlord in respect of the ownership or management of the Development by municipal or other governmental authority having jurisdiction, whether of a nature now or hereafter levied, assessed or imposed, together with the cost to the Landlord of contesting, appealing or negotiating the same in good faith but excluding those taxes and fees of the Tenant or other tenants referred to in Article 10.01 hereof. 19.25 "Rent" means Basic Rent and Additional Rent. 19.26 "Tax Cost" means the cost of Real Property Taxes. 19.27 "Tenant's Proportionate Share" means: (a) in relation to each of Building Operation and Maintenance Costs and HVAC Costs the proportion that the Area of the Leased Premises is of the Gross Leasable Area of the Building; and (b) in relation to Development Operation and Maintenance Costs, and Tax Cost, the proportion that the Area of the Leased Premises is of the Gross Leasable Area of the Development. 19.28 "Tenant's Work" has the meaning set out in Article 3.01 hereof. 19.29 "Term" means the term of the Lease, as set out in Basic Term .04. 19.30 "Year of the Term" means each successive twelve (12) month period of the Term, the first of which commences on the Commencement Date. ARTICLE 20 Special Provisions 20.01 Deposit The Landlord acknowledges receipt of $102,862.67 (the "Deposit") to be held without interest for application by the Landlord firstly against payment of first months' Rent, including Goods and Services Tax with the balance to be held as security for the due and proper performance by the Tenant of all of the terms, covenants and conditions of this Lease, including the payment of all Rent due hereunder. At the expiration of the Term, any portion of the Deposit that remains outstanding and unapplied by the Landlord shall be repaid by the Landlord to the Tenant within 90 days of the expiration of the Term. Notwithstanding the foregoing, if the Tenant fails to execute and deliver this Lease within 90 days of receipt from the Landlord or fails to take possession of the Leased Premises by December 1, 1996, the Landlord may, at its sole option, terminate this Lease, whereupon the Deposit shall be retained by the Landlord as liquidated damages on account of the Tenant's default and not as a penalty. 20.02 Pre-Authorized Payment Plan The Tenant authorizes the Landlord to withdraw monthly Rent payments from the Tenant's account by of direct withdrawals, as may be arranged from time to time between financial institutions administering the Tenant's and the Landlord's accounts. The Tenant further agrees to execute and provide whatever further documentation, account information, cancelled cheques or otherwise, which are reasonably requested by the Landlord in the administration of a pre-authorized payment procedure for monies owing or accruing due as Rent under this Lease. 20.03 Rent Abatement Notwithstanding anything to the contrary herein contained, but subject to the Tenant being in occupancy and not in default, the Tenant shall not be required to pay Rent with respect to a portion of the Leased Premises, such portion being 10,000 square feet for the period commencing on the Commencement Date and ending twelve (12) months thereafter. For greater certainty, notwithstanding the partial Rent abatement set out above, the Tenant acknowledges and agrees that it shall remain responsible for the payment of Rent on the balance of the Area of Leased Premises. 20.04 Signage The Landlord, at its expense, shall include the Tenant's name on the main directory in the lobby of the Building as well as on the general directory at the entrance to the Development. The Tenant, at its expense, shall have the exclusive right to install two (2) backlit sign upon the raised facia panel at the Building parapet, location to be mutually agreed to by both parties, on either side of the Building visible from Highway 91 and Commerce Parkway. The Tenant acknowledges that any approved signage shall consist of individual letters or logos and no illuminated sign boxes shall be permitted for installation. 20.05 Right of Second Refusal The Tenant, when in occupancy and not then in default hereunder, shall have an ongoing right of second refusal subject to Macdonald Dettwiler and Associates Ltd. waiving its existing right of first refusal to lease all of the space set out below (the "Additional Space") on the terms and conditions and in the manner as follows: (a) The Landlord shall give notice in writing to the Tenant if the Additional Space is available for leasing, which notice shall set out: (i) the Additional Space; (ii) the Basic Rent payable; (iii) the Term; (iv) the inducements. (b) Upon such notice being given, the Tenant shall have seven (7) calendar days within which to agree in writing to lease the Additional Space upon terms set out in the said notice and, failing such agreement, the Landlord may lease the same to any third party at an effective rent considering inducements equal to or greater than that offered to the Tenant and this right of second refusal shall cease. (c) Unless otherwise specified in the notice, the terms of any lease entered into pursuant to this paragraph shall be the same as herein contained, save for the premises leased, Rent, any Landlord Work (or other inducements) and any further rights of second refusal. (d) The provisions hereof shall not apply to any portion of the Additional Space occupied by an existing tenant, whether pursuant to a lease renewal or extension agreement, overholding, or otherwise, it being understood and agreed that the Tenant shall only have a right of refusal to lease those portions of the Additional Space which have become vacant and available for lease by the Landlord. (e) The Additional Space referred to herein shall be any vacant space or space available for lease by the Landlord on the main floor of the Building contiguous to the Leased Premises. 20.06 Expansion Option The Tenant shall be granted a one (1) time option to expand into approximately five thousand (5,000) rentable square feet of space on the second floor of the Building (the "Expansion Space"). This option is subordinate to Hewlett-Packard (Canada) Ltd.'s option on the Expansion Space which option is to be exercised on or before January 31,1997 and is also subordinate to the existing and continuing rights of refusal to the Expansion Space by Macdonald, Dettwiler and Associates Ltd. In the event this option to expand is exercised, the Expansion Space shall form part of the Leased Premises and terms of such Expansion Space shall be on the same terms as are then applicable for -25- that portion of the Leased Premises being 10,000 square feet, including the Allowance and timing of Basic Rent payable. 20.07 Tenant Improvement Allowance Provided the Tenant is not in default, the Landlord shall provide the Tenant with an improvement allowance (the "Allowance") which shall be solely applied to fixturing and modifying the Leased Premises. The Allowance is payable in two (2) instalments as follows. The first instalment (the "First Instalment") is equal to the sum of $25.00 per square foot of the Area of the Leased Premises being approximately 31,200 square feet plus applicable Goods and Services Tax. The First Instalment is payable by the Landlord to the Tenant after provision of satisfactory evidence of payment of all of the Tenant's contractors in full by the Tenant including but not limited to a statutory declaration that all fees and payments resulting from the modification and fixturing of the Leased Premises have been made and provided this Lease has been fully executed and the Tenant has fully occupied the Leased Premises and commenced business operations therein. The second instalment (the "Second Instalment") is equal to the sum of $20.00 per square foot of the Area of the Leased Premises being 10,000 square feet plus applicable Goods and Services Tax. The Second Instalment is payable by the Landlord to the Tenant on or after September 1, 1997 and provided the Landlord receives satisfactory evidence of payment of all of the Tenant's contractors in full by the Tenant including but not limited to a statutory declaration that all fees and payments resulting from the modification and fixturing of the Leased Premises have been made and provided this Lease has been fully executed and the Tenant has fully occupied the Leased Premises and commenced business operations therein. All modifications to the Leased Premises are to the Tenant's account and are subject to the Landlord's prior written approval. It is understood that the Landlord's contractor shall be utilized for all changes to the mechanical, electrical and life safety systems. All design and consultants' fees and permits are to the Tenant's account. The Tenant shall spend a minimum of $17.00 per square foot of the Area of Leased Premises of the Allowance on the fixturing and modifying of the Leased Premises. It is understood and agreed that the Allowance shall not be applied towards items such as office furnishings, system furniture, indoor plants, and office and communications equipment. 20.8 Extension of Term (a) If: (i) the Tenant is not then in material default during the Term; and (ii) the Tenant gives the Landlord not less than six (6) months' written notice and not more than eighteen (18) months' prior to the expiry of the initial Term, of its intention to extend the Term; then the Tenant will have the right to extend the Term upon the expiry of the initial Term for a further period of three (3) years (the "First Extended Term") upon the same terms and conditions as are set out in this Lease, except that: (iii) there will be no further right to extend the Term except as provided in subparagraph (b) hereunder; (iv) any Allowance, shall not apply to the First Extended Term; (v) the Basic Rent payable by the Tenant during the First Extended Term shall be negotiated and agreed upon between the parties prior to the commencement of the First Extended Term based on the prevailing fair market Basic Rent at the commencement of the First Extended Term for similarly improved premises of similar size, quality, use and location in office buildings of a similar size, quality and location in Richmond, British Columbia Failing such agreement, then within two (2) months prior to the commencement of the First Extended Term, Basic Rent shall be determined by arbitration under the provisions of the Commercial Arbitration Act (British Columbia) and in accordance with this Article 20.08. -26- (b) Provided the Tenant has, pursuant to subparagraph (a) above, validly exercised its option to extend the Term for the First Extended Term, and if: (i) the Tenant is not then in material default during the First Extended Term; and (ii) the Tenant gives the Landlord not less than six (6) months' written notice and not more than eighteen (18) months' prior to the expiry of the First Extended Term, of its intention to further extend the Term; then the Tenant will have the right to extend the Term upon the expiry of the First Extended Term for a further period of three (3) years (the "Second Extended Term") upon the same terms and conditions as are set out in the Lease, except that: (iii) there will be no further right to extend the Term; (iv) any Allowance, shall not apply to the Second Extended Term; (v) the Basic Rent payable by the Tenant during the Second Extended Term shall be negotiated and agreed upon between the parties prior to the commencement of the Second Extended Term based on the prevailing fair market Basic Rent at the commencement of the Second Extended Term for similarly improved premises of similar size, quality, use and location in office buildings of a similar size, quality and location in Richmond, British Columbia Failing such agreement, then within two (2) months prior to the commencement of the Second Extended Term, Basic Rent shall be determined by arbitration under the provisions of the Commercial Arbitration Act (British Columbia) and in accordance with this Article 20.08. If the Tenant fails to exercise the forgoing options to extend the Term in accordance with this Article 20.08, or if the other conditions set out in this Article 20.08 are not satisfied, these options to extend shall be null and void. IN WITNESS WHEREOF the parties hereto have executed this agreement by their respective duly authorized officers in that behalf, as of the day and year first above written. BENTALL PROPERTIES LTD. Per: /s/ [ILLEGIBLE] - ------------------------------------- Authorized Signatory Per: /s/ [ILLEGIBLE] - ------------------------------------- Authorized Signatory THE CORPORATE SEAL of WESTMINSTER MANAGEMENT CORPORATION was hereunto affixed in the presence of: /s/ [ILLEGIBLE] - ------------------------------------- Authorized Signatory /s/ M. Brightman - ------------------------------------- Authorized Signatory THE CORPORATE SEAL of BROOKS AUTOMATION (CANADA) CORP. was hereunto affixed in the presence of: /s/ [ILLEGIBLE] - ------------------------------------- Authorized Signatory /s/ Rose M. Vallee - ------------------------------------- Authorized Signatory -27- EX-10.28 9 b40853baex10-28.txt ASSET PURCHASE AGREEMENT EXHIBIT 10.28 ASSET PURCHASE AGREEMENT by and among BROOKS AUTOMATION, INC., NEXSTAR CORPORATION, and ZYGO CORPORATION December 13, 2001 ASSET PURCHASE AGREEMENT TABLE OF CONTENTS
PAGE ASSET PURCHASE AGREEMENT......................................................................................... 1 ARTICLE I. DEFINITIONS........................................................................................... 1 1.1 Definitions.......................................................................................... 1 ARTICLE II. PURCHASE AND SALE OF PURCHASED ASSETS................................................................ 8 2.1 Purchased Assets..................................................................................... 8 2.2 Excluded Assets...................................................................................... 9 2.3 Assumption of Liabilities............................................................................ 10 2.4 Retained Liabilities................................................................................. 10 2.5 Taxes; Documents of Assignment....................................................................... 11 2.6 Other Documents; Further Assurances.................................................................. 12 ARTICLE III. AGGREGATE CONSIDERATION............................................................................. 13 3.1 Aggregate Consideration and Payment.................................................................. 13 3.2 Determination of Closing Working Capital Amount; Adjustment of the Aggregate Consideration........... 13 3.3 Allocation of Aggregate Consideration................................................................ 16 3.4 Escrowed Consideration............................................................................... 16 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND ZYGO................................................ 16 4.1 Organization and Qualification of the Companies...................................................... 16 4.2 Authority; No Violation.............................................................................. 16 4.3 Capitalization....................................................................................... 17 4.4 Subsidiaries; Other Investments...................................................................... 17 4.5 Financial Statements................................................................................. 18 4.6 Absence of Undisclosed Liabilities................................................................... 18 4.7 Conduct of Business; Absence of Certain Changes...................................................... 18 4.8 Payment of Taxes..................................................................................... 21 4.9 Title to Properties; Encumbrances; Condition of Properties........................................... 22 4.10 Collectibility of Receivables........................................................................ 23 4.11 Inventories.......................................................................................... 23 4.12 Intellectual Property Assets......................................................................... 23 4.13 Contracts and Commitments............................................................................ 26 4.14 Employees............................................................................................ 29 4.15 Labor and Employee Relations......................................................................... 29 4.16 Employee Benefits.................................................................................... 30 4.17 Environmental Matters................................................................................ 31 4.18 Government Authorizations/Compliance with Laws....................................................... 32 4.19 Warranty or Other Claims............................................................................. 33 4.20 Litigation........................................................................................... 33 4.21 Insurance............................................................................................ 34 4.22 Corporate Books, Records and Accounts................................................................ 34 4.23 Finder's Fee......................................................................................... 34 4.24 Transactions with Interested Persons................................................................. 34 4.25 Absence of Sensitive Payments........................................................................ 35 4.26 Payables............................................................................................. 35 4.27 Copies of Documents.................................................................................. 35
Page i 4.28 Sufficiency.......................................................................................... 35 4.29 Disclosure of Material Information................................................................... 35 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER............................................................... 35 5.1 Organization of Buyer................................................................................ 36 5.2 Authorization of Transaction......................................................................... 36 5.3 No Conflict of Transaction With Obligations and Laws................................................. 36 5.4 Brokers or Finders................................................................................... 37 ARTICLE VI. COVENANTS OF THE SELLER.............................................................................. 37 6.1 Access to Information................................................................................ 37 6.2 Governmental Authorizations; Consents................................................................ 37 6.3 Assignment of Contracts.............................................................................. 37 6.6 Certain Filings...................................................................................... 37 6.7 Product Warranty/Liability........................................................................... 37 6.6 Tax Clearance........................................................................................ 38 6.7 Employee Benefits.................................................................................... 38 6.8 UMC Machine.......................................................................................... 38 6.9 Enforcement of Nondisclosure and NonViolation Agreement.............................................. 39 ARTICLE VII. COVENANTS OF BUYER.................................................................................. 39 7.1 Notices and Consents................................................................................. 39 7.2 Certain Filings...................................................................................... 39 7.3 Governmental Authorizations; Consents................................................................ 39 7.4 Employment Offers.................................................................................... 39 7.5 Warranty Service..................................................................................... 39 7.6 Employee Benefits.................................................................................... 39 ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF BUYER................................................................. 40 8.1 Representations; Warrantees; Covenants............................................................... 40 8.2 Encumbrance Terminations............................................................................. 40 8.3 Certain Ancillary Agreements......................................................................... 40 8.4 Key Employees........................................................................................ 41 8.5 Noncompetition Agreements............................................................................ 41 8.6 Authorization from Others............................................................................ 41 8.7 Absence of Certain Litigation........................................................................ 41 8.8 No Bankruptcy........................................................................................ 41 8.9 Opinion of Counsel for the Seller.................................................................... 42 8.10 No Material Adverse Effect........................................................................... 42 8.11 Approval of Buyer's Counsel.......................................................................... 42 8.12 Tax Status Letter.................................................................................... 42 ARTICLE IX. CONDITIONS TO OBLIGATIONS OF THE SELLER.............................................................. 43 9.1 Representations; Warrantees; Covenants............................................................... 43 9.2 Certain Ancillary Agreements......................................................................... 43 9.3 Governmental Consents and Approvals.................................................................. 43 9.4 Absence of Certain Litigation........................................................................ 43 9.5 No Bankruptcy........................................................................................ 43 9.6 Opinion of Buyer's Counsel........................................................................... 44 ARTICLE X. INDEMNIFICATION....................................................................................... 44 10.1 Indemnification by the Seller and Zygo............................................................... 44 10.2 Indemnification by Buyer............................................................................. 46 10.3 Defense of Third Party Actions....................................................................... 48 10.4 Miscellaneous........................................................................................ 48 10.5 Payment of Indemnification........................................................................... 49
Page ii ARTICLE XI. MISCELLANEOUS........................................................................................ 49 11.1 Survival of Warranties............................................................................... 49 11.2 Fees and Expenses.................................................................................... 49 11.3 Notices.............................................................................................. 49 11.4 Publicity and Disclosures............................................................................ 51 11.5 Entire Agreement..................................................................................... 51 11.6 Severability......................................................................................... 51 11.7 Assignability........................................................................................ 51 11.8 Amendment............................................................................................ 52 11.9 Governing Law; Venue................................................................................. 52 11.10 Remedies............................................................................................. 52 11.11 Counterparts......................................................................................... 52 11.12 Effect of Table of Contents and Headings............................................................. 53 11.13 Interpretation....................................................................................... 53 List of Schedules and Exhibits................................................................................ 55
Page iii ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "AGREEMENT") dated as of December 13, 2001, is entered into by and among Brooks Automation, Inc., a Delaware corporation (the "BUYER"), NexStar Corporation, a Colorado corporation (the "Seller"), and Zygo Corporation ("Zygo"), a Delaware corporation and the sole stockholder of Seller. This Agreement, including the exhibits and schedules hereto, sets forth the terms and conditions upon which the Buyer or one or more Subsidiaries of the Buyer will acquire substantially all of the assets of the Seller and assume certain identified liabilities of the Seller in exchange for a total of $13,000,000 in cash (subject to adjustment in accordance herewith). In consideration of the mutual representations, warranties and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I. DEFINITIONS 1.1. Definitions. For the purposes of this Agreement and, unless otherwise set forth therein, for the purposes of all schedules and exhibits to this Agreement, all capitalized words or expressions used in this Agreement (including the schedules and exhibits annexed thereto) shall have the meanings specified in this Article I (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "AAA RULES" is defined in Section 11.9(b) hereof. "ACQUIRED CONTRACTS" is defined in Section 2.1(b) hereof. "AFFILIATE" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the other Person in question. "AGGREGATE CONSIDERATION" is defined in Section 3.1(a) hereof. "AGREEMENT" is defined in the preamble hereof. "ANCILLARY AGREEMENTS" means all of the documents, instruments and agreements entered into or executed in conjunction with the execution, delivery and performance of this Agreement, including, but not limited to, those documents and agreements referenced in Sections 8.3 and 9.2 hereof. "ASSUMED LIABILITIES" is defined in Section 2.3 hereof. "BASE BALANCE SHEET" means Exhibit A, the unaudited balance sheet of the Seller which reflects the book value of both the Purchased Assets and the Assumed Liabilities as of the Base Balance Sheet Date. "BASE BALANCE SHEET DATE" means June 30, 2001. Page 1 "BASE WORKING CAPITAL AMOUNT" is $5,425,629, the working capital amount derived from the Base Balance Sheet. "BUYER" is defined in the preamble hereof. "BUYER'S BASKET" is defined in Section 10.2(b) hereof. "BUYER'S INDEMNIFIED PERSONS" means the Buyer, its Subsidiaries, its Affiliates and their respective present and former directors, officers, employees and, stockholders, representatives and agents. "CLOSING" means the closing of the transactions contemplated herein, which shall be held at the offices of Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston, MA 02111 at 10:00 a.m., on December 13, 2001 or at such other place, date or time as may be fixed by mutual agreement of the parties (the "CLOSING DATE"). "CLOSING BALANCE SHEET" is defined in Section 3.2(b) hereof. "CLOSING DATE" is defined in the definition of "Closing." "CLOSING WORKING CAPITAL AMOUNT" is defined in Section 3.2(b) hereof. "CLOSING STATEMENT" is defined in Section 3.2(b) hereof. "CODE" means the Internal Revenue Code of 1986, as amended, or any successor law. "CONSTITUENT DOCUMENTS" means the certificate of incorporation, articles of organization, agreement of association, bylaws and/or equivalent documents pursuant to which a corporation is organized and operates under its governing law. "CONTRACT" means any agreement, contract, obligation, promise, commitment or undertaking (whether written or oral), other than those that have been terminated. "COPYRIGHTS" means all copyrights in both published works and unpublished works, including training manuals, marketing and promotional materials, internal reports, business plans mask works, software, programs and related documentation, and videos and any other expressions, whether registered or unregistered, and all registrations or applications in connection therewith that are used in or material to the conduct of Seller's business as it is currently conducted. "COURT ORDER" means court order, judgment, administrative or judicial order, writ, decree, stipulation, arbitration award or injunction. "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA and any other material plan, policy, program, practice or agreement (whether written or oral) providing compensation or other benefits (other than ordinary cash compensation) to any current or former director, officer, employee or consultant (or to any dependent or beneficiary Page 2 thereof) of the Seller maintained by the Seller or Zygo, or under which the Seller has or could have any obligation or liability, whether actual or contingent, including, without limitation, all incentive, bonus, deferred compensation, profit sharing, vacation, holiday, cafeteria, medical, disability, stock purchase, stock option, stock appreciation, phantom stock, restricted stock or other stock-based compensation plans, policies, programs, practices or arrangements. "ENCUMBRANCE" means any mortgage, deed of trust, charge, claim, lease, community property interest, equitable interest, lien, option, hypothecation, pledge, covenant, condition, security interest, title defect, right of first refusal, restriction of any kind (including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership), any filing of any financing statement as debtor under the Uniform Commercial Code or comparable law of any jurisdiction and any agreement to give or make any of the foregoing; and the verb "Encumber" shall be construed accordingly. "ENVIRONMENTAL LAWS" means Laws, Court Orders and Government Authorizations concerning the environment, or activities that might threaten or result in damage to the environment or human health, or any Laws, Court Orders and Government Authorizations that are concerned, in whole or in part, with: (1) the environment and with protecting or improving the quality of the environment and human and employee health and safety issues; or (2) the management of pollution or Hazardous Materials, including, but not limited to, the: (a) Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"); (b) Resource Conservation and Recovery Act ("RCRA"); (c) Clean Air Act; (d) Clean Water Act; (e) Toxic Substances Control Act; (f) Emergency Planning and Community Right-to-Know Act of 1986; (g) Hazardous Materials Transportation Act; (h) Federal Water Pollution Control Act; and (i) the Federal Insecticide, Fungicide and Rodenticide Act, as such laws have been amended or supplemented, and the regulations promulgated pursuant thereto, and any and all analogous state or local statutes, and the regulations promulgated pursuant thereto, or any successor laws and any similar laws, rules, or regulations. "ENVIRONMENTAL SITE" means any properties or facilities currently or formerly owned or leased by the Seller in connection with the operation of the Purchased Assets. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor law. "ERISA AFFILIATE" is defined in Section 4.16(b) hereof. "ESCROW" is defined in Section 3.4 hereof. "ESCROW AGENT" is defined is Section 3.4 hereof. "ESCROWED CONSIDERATION" is defined in Section 3.1(b) hereof subject to modification as provided in the Escrow Agreement. "ESTIMATED BALANCE SHEET" is defined in Section 3.2(a) hereof. Page 3 "ESTIMATED STATEMENT" is defined in Section 3.2(a) hereof. "ESTIMATED WORKING CAPITAL" is defined in Section 3.2(a) hereof. "ESTIMATED ADJUSTMENT AMOUNT" is defined in Section 3.2(a) hereof. "EXCLUDED ASSETS" is defined in Section 2.2 hereof. "EXPECTED ASSIGNED CONTRACTS" is defined in Section 2.2(g) hereof. "GAAP" means generally accepted accounting principles in the United States of America, applied on a basis consistent with past practices. "GOVERNMENTAL AUTHORITY" means any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, any foreign country or any domestic, foreign, state, local, county, city or other political subdivision. "GOVERNMENT AUTHORIZATIONS" means any license, permit, order, franchise agreement, concession, grant, authorization, consent or approval from a Government Authority. "HAZARDOUS MATERIALS" means any substance, material or waste which is regulated by an Environmental Law, including, without limitation, any material or substance which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste," "subject waste," "contaminant," "toxic waste" or "toxic substance" under any provision of Environmental Law, including, but not limited to, petroleum products, asbestos and polychlorinated biphenyls. "INDEMNIFIED PERSON" means any Buyer Indemnified Person or Seller Indemnified Person entitled to be indemnified under Article X. "INDEMNIFYING PERSON" means (a) the Seller and Zygo, jointly and severally or (b) Buyer, as applicable. "INDEPENDENT CPA" means Deloitte & Touche LLP. "INTELLECTUAL PROPERTY ASSETS" means Licensed Intellectual Property Assets and Owned Intellectual Property Assets. "INVENTORIES" is defined in Section 4.11 hereof. "KEY EMPLOYEES" means those persons identified on Exhibit B. "LAWS" means statutes, laws, ordinances rules and regulations issued by any Government Authority. Page 4 "LIABILITIES" means all the actual or contingent liabilities of the Seller existing at the time of the Closing or any such liabilities incurred as a direct result of the Closing. "LICENSED INTELLECTUAL PROPERTY ASSETS" means all intellectual property rights including without limitation Marks, Patents, Copyrights and Trade Secrets in every jurisdiction which are licensed to Seller. "LOSSES" means all losses, damages (including, without limitation, punitive and consequential damages actually paid by the Indemnified Person to third parties), fines, penalties, payments, obligations and all liabilities and all expenses related thereto incurred by an Indemnified Person except, punitive and consequential damages and lost profits, lost revenues and opportunity costs of the Indemnified Person. Losses shall include any reasonable legal fees and costs incurred by any of the Indemnified Persons subsequent to the Closing in defense of or in connection with any alleged or asserted liability, payment or obligation, whether or not any liability or payment, obligation or judgment is ultimately imposed against the Indemnified Persons and whether or not the Indemnified Persons are made or become parties to any such action. "MARKS" means all trademarks, service marks, trade names, common law trademarks, business names, Internet domain names and addresses, trade dress, slogans, and all registrations or applications therefor, and the goodwill associated therewith that are used in or material to the conduct of Seller's business as it is currently conducted. "MATERIAL ADVERSE EFFECT" means when used in connection with Seller, Zygo or Buyer any change, circumstance or effect which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse change in, or effect on the assets, liabilities, financial condition or results of operations of such party or on the ability of such party to consummate the transactions contemplated hereby or by the Ancillary Agreements; provided, however, "Material Adverse Effect" shall not include any material adverse change or effect occurring (i) to the extent that such change or effect is a result of the execution and public announcement of this Agreement, the pendency of the Agreement or the consummation of the transactions contemplated hereby, or (ii) as a result of general economic, regulatory or political conditions, or changes in the semiconductor industry generally except to the extent such change, effect, event, occurrence or state of facts disproportionately affects such party and its Subsidiaries. "MATERIAL PERSONAL PROPERTY" is defined in Section 4.9(b) hereof. "MATERIAL REAL PROPERTY" is defined in Section 4.9(a) hereof. "OWNED INTELLECTUAL PROPERTY ASSETS" means all intellectual property rights including without limitation Marks, Patents, Copyrights and Trade Secrets in every jurisdiction which are owned by Seller. "PATENTS" means all patents, patent applications and inventions and discoveries that may be patentable, including any patents issuing therefrom, and any reissues, reexaminations, Page 5 divisions, continuations in whole or in part, extensions and foreign counterparts thereof that are used in or material to the conduct of Seller's business as it is currently conducted. "PERMITTED ENCUMBRANCES" means (i) Encumbrances for current taxes not yet due, (ii) mechanics', materialmen's, warehousemen's, contractors', workmens', repairmens', carriers' and similar Encumbrances attaching by operation of law, incurred in the ordinary course of business and securing payments not delinquent, (iii) the rights, if any, of third-party suppliers or other vendors having possession of equipment of the Seller, (iv) encumbrances, imperfection of title and easements and zoning restrictions, if any, which do not materially impair the operations of the Seller or materially detract from the value of the property subject thereto and purposes to which such property is currently employed and (v) those items listed in Section 4.9 of the Disclosure Schedule. "PERSON" means any individual, firm, partnership, association, trust, corporation, limited liability company, governmental body or other entity. "PP&E ADJUSTMENT" means the difference of the property, plant and equipment amount reflected on the Base Balance Sheet minus the property, plant and equipment amount reflected on the Closing Balance Sheet excluding any difference due to depreciation. "PROCEEDING" means any pending formal or informal claim, action, investigation, arbitration, litigation or other judicial, regulatory or administrative proceeding. "PURCHASED ASSETS" means the assets described in Section 2.1 hereof. "RECEIVABLES" means the assets described in Section 4.10 hereof. "RELATED PERSON" is defined in Section 4.25 hereof. "RESOLUTION PERIOD" is defined in Section 3.2(e) hereof. "RETAINED CONTRACTS" is defined in Section 2.2(h) "RETAINED LIABILITIES" is defined in Section 2.4 hereof. "RETURNS" is defined in Section 4.8(a) hereof. "REVIEW PERIOD" is defined in Section 3.2(c) hereof. "SEC" means the U.S. Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" is defined in the Preamble hereof. Page 6 "SELLER INDEMNIFIED PERSONS" means Zygo and the Seller, and each of their respective subsidiaries and affiliated corporations, their respective present and former directors, officers, employees and controlling persons, stockholders, representatives and agents. "SELLER'S BASKET" is defined in Section 10.1(b) hereof. "SELLER'S INSURANCE" is defined in Section 6.7 hereof. "SELLER'S UNAUDITED FINANCIAL STATEMENTS" is defined in Section 4.5 hereof. "SUBSIDIARY" means with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which more than 50% of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent persons thereof is owned or controlled, directly or indirectly, by such Person. "TAX CLEARANCE" is defined in Section 6.6 hereof. "TAXES" (including, with correlative meaning, the terms "Tax" and "Taxable") means all income, profit, franchise, gross receipts, sales, use, real property, personal property, ad valorem, excise, value added, alternative minimum, employment, payroll, social security and withholding taxes, severance, stamp, gains, transfer, license, documentary, customs, occupation, environmental, windfall, and other taxes, duties, or assessments of any kind whatsoever, and any interest or fines, and any and all penalties and additions relating to such amounts, imposed by any Governmental Authority (a "TAX AUTHORITY"). "THIRD PARTY ACTION" means any written assertion of a claim, or the commencement of any action, suit, or proceeding, by a third party as to which any Person believes it may be an Indemnified Person hereunder. "TRADE SECRETS" means all trade secrets, know-how, confidential information, customer lists, sales and marketing information, technical information and documentation (which reproduce the types of information otherwise listed in the definition of Trade Secrets herein), proprietary information technologies, designs, procedures, processes and formulae, source code, algorithms, architecture, structure, display screens and development tools, data, patterns, plans, designs, drawings, models and blue prints, specifications, flow sheets, equipment and parts lists, whether tangible or intangible and whether stored, compiled, or memorialized physically, electronically, photographically, or otherwise, and all descriptions and related instructions, manuals, data, records and procedures related thereto that are used in or material to the conduct of Seller's business as it is currently conducted. "TRADING DAY" means any day on which the Nasdaq National Market is open for business. "TRANSFERRED EMPLOYEE" means any former employee of Seller or Zygo hired by Buyer in connection with the transactions contemplated by this Agreement (including, without limitation, the Key Employees). Page 7 "TRANSFER TAX" is defined in Section 2.5(a) hereof. "TRANSFER TAX CONTRIBUTION" is $15,000. "TRANSFER TAX RETURNS" is defined in Section 2.5(a) hereof. "UMC MACHINE" means the machine manufactured for UMC pursuant to Seller's quote #ZP-S00-636-B dated 11/09/00. "ZYGO" is defined in the Preamble hereof. ARTICLE II. PURCHASE AND SALE OF PURCHASED ASSETS 2.1. Purchased Assets. Subject to the provisions of this Agreement and except as expressly excluded in Section 2.2 below, the Seller agrees to sell and the Buyer agrees to purchase, at the Closing, all of the properties, assets and business of the Seller of every kind and description, tangible and intangible, real, personal or mixed, and wherever located, including, without limitation, all assets shown or reflected on the Base Balance Sheet and arising since the Base Balance Sheet Date in the ordinary course, other than those assets listed and described in Section 2.2 below as Excluded Assets. The assets, property and business of the Seller to be sold to and purchased by the Buyer under this Agreement are hereinafter sometimes referred to as the "PURCHASED ASSETS." The Purchased Assets include, but are not limited to, the following assets and business of the Seller: (a) all of the Receivables, Inventory, machinery and equipment and other assets shown on the Base Balance Sheet plus any assets listed on Schedule 2.1(a) hereto, with only such changes with respect to such Receivables and Inventory as have occurred since the date of the Base Balance Sheet and such changes to such machinery, equipment and other assets as have occurred in the ordinary course of the Seller consistent with past practice since the date of the Base Balance Sheet; (b) all rights and interests of the Seller in and to executory contracts, commitments, plans, agreements, understandings, licenses and personal property leases, other than in respect of any Retained Liability, any Expected Assigned Contracts or any Retained Contracts, including, without limitation, those listed on Schedule 2.1(b) hereto (the "ACQUIRED CONTRACTS"); (c) all rights and interests of the Seller in and to customer purchase orders except the Retained Contract; (d) all of the Seller's books, records and accounts, correspondence and any confidential information relevant to the operation of their business which has been reduced to writing (which may be provided on computer disks, tape or comparable media), including, but not limited to, engineering records, purchase and sales records since July 1, 2000, production flow chart records; credit records since July 1, 2000, copies of accounting records, and customer and vendor lists and records since July 1, 2000; personnel records, payroll records and employee benefit summaries but excluding items identified in Section 2.2(b) hereof; Page 8 (e) all of Seller's rights, title and interest in and to the Intellectual Property Assets listed on Schedule 2.1(e); (f) all of Seller's right, title and interest in, to and under third-party manufacturers' warranties with respect to the Purchased Assets other than in respect to any Retained Liabilities; (g) any and all of the Seller's Governmental Authorizations which relate to the Purchased Assets or are used in or material to the Seller's business to the extent that the same are transferable; (h) all of the Seller's cash and cash equivalents; and (i) all of Seller's customer lists and sales and marketing information. 2.2. Excluded Assets. The following assets shall be excluded from the Purchased Assets (collectively, the "EXCLUDED ASSETS"): (a) assets and property disposed of since the date of the Base Balance Sheet in the ordinary course of business and such other assets as have been disposed of pursuant to this Agreement; (b) the Seller's corporate franchise, stock record books, corporate record books containing minutes of meetings of directors and stockholders and such other records as have to do exclusively with the Seller's organization or stock capitalization; (c) any and all income, sales, use, corporation excise and franchise tax refunds which the Seller may be entitled to receive from Governmental Authorities which relate to its ownership of the Purchased Assets prior to Closing or its operation of its business prior to the Closing and any right of the Seller to claim refunds for any Taxes in respect of any period prior to the Closing; (d) any asset relating to or arising out of any Employee Benefit Plan; (e) any asset relating to or arising from any transactions between the Seller and Zygo or between or among Zygo, the Seller and any Affiliate of Zygo or the Seller; (f) the goodwill of the Seller; (g) any and all rights, interests and liabilities of the Seller or Zygo in the contracts and agreements listed on Schedule 2.2(g) hereof, which Seller wishes to assign but cannot assign without the consent of a third party (the "EXPECTED ASSIGNED CONTRACTS"); and (h) any and all rights, interests and liabilities of the Seller or Zygo in the contracts and agreements listed on Schedule 2.2(h) hereof (the "RETAINED CONTRACTS") Page 9 2.3. Assumption of Liabilities. Upon the sale and purchase of the Purchased Assets, the Buyer shall assume, pay, perform or discharge when due those liabilities and obligations of the Seller set forth below to the extent existing as of the Closing or subsequent thereto (the "ASSUMED LIABILITIES"). The Assumed Liabilities shall consist only of the following: (a) all the liabilities of the Seller shown on the Base Balance Sheet which are outstanding at the time of the Closing other than the Retained Liabilities; (b) all liabilities and obligations incurred by the Seller in the ordinary course of business and consistent with the terms hereof since the date of the Base Balance Sheet which are outstanding at the time of the Closing other than in respect to the Retained Liabilities; (c) any liability relating to the ownership, use or operation of the Purchased Assets by Buyer after the Closing Date; (d) any and all Taxes arising in respect of taxable periods beginning after the Closing Date or, with respect to any taxable period that begins before, but ends after the Closing Date, that portion of such taxable period that begins after the Closing Date relating to Buyer's ownership or operations of the Purchased Assets after the Closing; and (e) any liabilities and obligations relating to the employment or termination by Buyer of any former employees of Seller (including, without limitation, the Key Employees). The assumption of Assumed Liabilities by the Buyer hereunder shall be treated as independent of the Buyer's existing business and shall not enlarge any rights of third parties under contracts or arrangements with the Buyer or the Seller. Nothing herein shall prevent the Buyer from contesting in good faith any of the Assumed Liabilities. 2.4. Retained Liabilities. Except to the extent expressly assumed pursuant to Section 2.3 above, the Buyer does not assume and shall not be liable for any debt, obligation, responsibility or liability of the Seller, or any Affiliate of the Seller, or any claim against any of the foregoing, whether known or unknown, contingent absolute or otherwise (collectively, the "RETAINED LIABILITIES"). Without limiting the foregoing sentence, the Buyer shall have no responsibility with respect to the following, whether or not disclosed in the Base Balance Sheet or a schedule hereto: (a) any liabilities and obligations related to or arising from any transactions between the Seller and Zygo or between or among Zygo, the Seller and any Affiliate of Zygo or the Seller; (b) any liabilities and obligations for Taxes of any kind arising before the Closing (including, without limitation, sales tax), and for any Transfer Taxes subject to the provisions of Section 2.5 hereto; Page 10 (c) any liabilities, obligations and penalties for damage or injury to person or property based upon events occurring prior to the Closing Date; (d) any liabilities and obligations of the Seller to its current or former employees (including, without limitation, the Key Employees and any other employee of Seller hired by Buyer); (e) any workmen's liens on any of the Purchased Assets; (f) any liabilities and obligations of the Seller to customers or third parties in connection with their business with respect to shortages and defects in goods delivered to customers or in transit to customers prior to the Closing, including but not limited to, liabilities and obligations for product warranty and product liability claims; (g) any liability relating to or arising from any Employee Benefit Plan; (h) any liability relating to government grants, subsidiaries or other assistance including, without limitation, any liability for reimbursement to a government for any research and development grants, subsidies or assistance previously paid by the government relating to or arising out of the Seller's business prior to Closing; and (i) liabilities incurred by the Seller in connection with this Agreement and the transactions provided for herein, including counsel and accountant's fees, filing fees and expenses related to the Seller's performance of their obligations hereunder. 2.5. Taxes; Documents of Assignment. (a) Each of Buyer on the one hand and the Seller and Zygo (jointly and severally) on the other hand shall be responsible for all Taxes required by any Governmental Authority in any relevant jurisdiction which arise out of or result from the sale of the Purchased Assets or the receipt of the Aggregate Consideration ("TRANSFER TAX") except that Buyer's maximum responsibility pursuant to this section shall not exceed an aggregate of $50,000. Seller and Zygo shall be responsible for all Transfer Tax in excess of $50,000. Transfer Tax shall not include any amounts required to be remitted to any Governmental Authority for prior Tax deficiencies. In addition, the Buyer shall upon consultation with Seller, at its expense, properly complete, sign, and timely file any and all required Returns relating to Transfer Tax ("TRANSFER TAX RETURNS") and, if required by applicable law, the Seller and Zygo will join in the execution of any such Transfer Tax Returns. (b) At the Closing, the Seller shall deliver or cause to be delivered to the Buyer good and sufficient instruments of transfer transferring to the Buyer or its designee title subject to Permitted Encumbrances to all the Purchased Assets sold by the Seller. Such instruments of transfer: (i) shall be in the form and will contain the warranties, covenants and other provisions (not inconsistent with the provisions hereof) which are usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers; (ii) shall be in form and substance reasonably satisfactory to counsel for the Buyer; and Page 11 (iii) shall effectively vest in the Buyer good and valid title to all the Purchased Assets, free and clear of all Liabilities or Encumbrances not specifically assumed by the Buyer or its designee hereunder. (c) At the Closing, the Seller shall deliver or cause to be delivered to the Buyer or its designee all of the Acquired Contracts, with such assignments thereof and consents to assignments as are necessary to assure the Buyer of the full benefit of the same. The Seller shall also deliver to the Buyer or its designee at the Closing copies of all of the Seller's business records, tax returns, books and other data relating to the Purchased Assets, and the business and operations (except the Excluded Assets) of the Seller and shall use its best efforts to take all requisite steps to put the Buyer in actual possession and operating control of the Purchased Assets. After the Closing, the Buyer shall afford to the Seller and its accountants and attorneys reasonable access to the books and records of the Seller delivered to the Buyer under this Section 2.5 and shall permit the Seller to make extracts and copies therefrom for the purpose of preparing such tax returns of the Seller as may be required after the Closing and for other proper purposes reasonably approved by the Buyer. 2.6. Other Documents; Further Assurances. (a) At the Closing, the Seller and Zygo shall deliver or cause to be delivered to the Buyer such other documents as may be required by any Ancillary Agreement. (b) The Seller and Zygo from time to time after the Closing, but prior to twelve months after the Closing Date, at the request of the Buyer and without further consideration shall execute and deliver further instruments of transfer and assignment and take such other action as the Buyer may reasonably require to more effectively transfer and assign to, and vest in, the Buyer each of the Purchased Assets, including, without limitation, any accounts receivable paid to Zygo or Seller after the Closing Date. To the extent that the assignment of any lease, contract, commitment or right (including, without limitation, the Expected Assigned Contracts) shall require the consent of other parties thereto, this Agreement shall not constitute an assignment thereof; however, the Seller and Zygo shall use their commercially reasonable efforts after the Closing to obtain any necessary consents or waivers to assure the Buyer of the benefits of such leases, contracts, commitments or rights. If such consent is not obtained, the Seller and Zygo agree to cooperate with the Buyer, to the extent practicable and permitted thereunder, in any reasonable arrangement designed to provide for the Buyer the benefits thereunder, including, but not limited to, having: (i) the Buyer act as agent for the Seller and/or Zygo; and (ii) the Seller and/or Zygo shall enforce for the benefit of the Buyer any and all rights of the Seller and/or Zygo against the other party thereto arising out of the cancellation by such other party or otherwise. Nothing herein shall be deemed a waiver by the Buyer of its right to receive at the Closing an effective assignment of each of the leases, contracts, commitments or rights of the Seller being sold hereunder. Page 12 ARTICLE III. AGGREGATE CONSIDERATION 3.1. Aggregate Consideration and Payment. (a) Subject to the adjustment contained in Section 3.2 below, the aggregate consideration to be paid by the Buyer to the Seller (the "AGGREGATE CONSIDERATION") in consideration of the sale of the Purchased Assets shall be equal to: (i) the aggregate amount of the Assumed Liabilities as of the Closing; plus (ii) the difference of $13,000,000 minus the Estimated Adjustment Amount, in cash. (b) The cash portion of the Aggregate Consideration shall be paid by Buyer as follows: (i) the difference of $11,700,000 minus (1) the result of 0.9 times the Estimated Adjustment Amount and (2) the Transfer Tax Contribution shall be paid by wire transfer to the Seller at the Closing; (ii) the difference of $1,300,000 minus the result of 0.1 times the Estimated Adjustment Amount shall be delivered to the Escrow Agent at the Closing under the Escrow Agreement as provided by Section 3.4 below (the "ESCROWED CONSIDERATION"); and (iii) the Transfer Tax Contribution shall be held by Buyer until all of the Transfer Tax Returns have been filed and all of the Transfer Taxes required to be remitted by Buyer have been remitted at which time that portion of the Transfer Tax Contribution not required to be paid to a Governmental Authority pursuant to Section 2.5 hereof (if any) shall be paid by wire transfer to Seller within five (5) business days along with a certificate stating the amount of Transfer Tax paid. 3.2. Determination of Closing Working Capital Amount; Adjustment of the Aggregate Consideration. (a) Not less than five (5) days prior to the Closing Date, the Seller shall prepare and deliver to the Buyer: (i) a balance sheet (the "ESTIMATED BALANCE SHEET") which shall estimate the book value of both the Purchased Assets and the Assumed Liabilities as of October 26, 2001; and (ii) a statement (the "ESTIMATED STATEMENT") estimating the difference between the aggregate value of the current assets included in the Purchased Assets and the aggregate value of the current liabilities included in the Assumed Liabilities as of October 26, 2001 as reflected on the Estimated Balance Sheet, including without limitation all deferred revenue (the "ESTIMATED WORKING CAPITAL AMOUNT"). If the Estimated Working Capital Page 13 Amount is less than the Base Working Capital Amount, then the ESTIMATED ADJUSTMENT AMOUNT shall equal the difference of the Base Working Capital Amount minus the Estimated Working Capital Amount. If the Estimated Working Capital Amount is greater than or equal to the Base Working Capital Amount, the Estimated Adjustment Amount shall equal zero. (b) Not later than forty-five (45) days after the Closing Date, the Seller shall prepare and deliver to the Buyer with the reasonable assistance of the Transferred Employees: (i) a balance sheet (the "CLOSING BALANCE SHEET") which shall reflect the book value of both the Purchased Assets and the Assumed Liabilities as of the Closing Date; and (ii) a statement (the "CLOSING STATEMENT") indicating the difference between the aggregate value of the current assets included in the Purchased Assets and the aggregate value of the current liabilities included in the Assumed Liabilities as of the Closing Date, including without limitation all deferred revenue (such amount plus $75,000, the "CLOSING WORKING CAPITAL AMOUNT"). The Closing Balance Sheet shall be reviewed by KPMG LLP, the accountants of the Seller on a basis consistent with the preparation of the Base Balance Sheet and in accordance with GAAP. The Closing Balance Sheet shall also be accompanied by all necessary and appropriate supporting work papers and materials. Inventory shall be valued as provided in Section 4.11 hereof as of the close of business on the Closing Date based on a physical count undertaken on a mutually agreed upon date that is on or near the Closing Date at which all parties or their representatives may be present to observe. To the extent that the Closing Working Capital Amount differs from the Estimated Working Capital Amount, then the Aggregate Consideration shall be adjusted as hereinafter set forth. The Closing Balance Sheet shall only be used by the Seller and the Buyer in connection with this Agreement and the transactions contemplated hereby and will not be distributed or used in any United States' Securities and Exchange Commission filings unless otherwise required by Law. (c) Following receipt of the Closing Balance Sheet, the Buyer and the Buyer's accountants will have a period of sixty (60) calendar days (the "REVIEW PERIOD") to review, at the Buyer's cost, the Closing Balance Sheet. During such Review Period, the Buyer and the Buyer's accountant will be given reasonable access to any of the Seller's or Zygo's employees involved in the preparation of the Closing Balance Sheet and the records, work papers, trial balances and similar materials prepared by the Seller or Zygo or their accountants (provided the Buyer executes a customary accountant's indemnity agreement) in connection with the preparation of the Closing Balance Sheet; provided, however, that the Buyer shall provide reasonable prior notice of any such investigation to the Seller or Zygo as applicable. At or before the end of the Review Period, the Buyer will either: (i) accept the Closing Balance Sheet and the Closing Statement in their entirety, in which case the Closing Working Capital Amount will be deemed to be as set forth on the Closing Statement, and the Closing Balance Sheet and the Closing Statement shall become final, binding and conclusive on the Seller, Zygo and the Buyer; or (ii) deliver to the Seller and the Seller's accountants a written notice in accordance with paragraph (e) of this Section 3.2 disputing the Closing Balance Sheet or the Closing Statement. If the Buyer fails to provide the notice set forth in (ii) above within the Review Period, it shall be deemed acceptance of the Closing Balance Sheet. Page 14 (d) Within thirty (30) days following the later of: (x) the date the Closing Balance Sheet and the Closing Statement is accepted by Buyer; or (y) the final, binding and conclusive determination of any dispute with respect to the Closing Balance Sheet or the Closing Statement as provided in paragraph (e) of this Section 3.2, in either case: (i) if the difference of the Closing Working Capital Amount minus the PP&E Adjustment is less than the Estimated Working Capital Amount, then (x) the Seller shall pay to Buyer in cash an amount equal to 90% of the difference of (A) the Estimated Working Capital Amount minus (B) the Closing Working Capital Amount minus (C) the PP&E Adjustment and (y) the Buyer shall be paid from the Escrow Consideration an amount equal to 10% of the difference of (A) the Estimated Working Capital Amount minus (B) the Closing Working Capital Amount minus (C) the PP&E Adjustment; or (ii) if the Closing Working Capital Amount minus the PP&E Adjustment is greater than the Estimated Working Capital Amount, then (x) the Buyer shall pay to Seller in cash an amount equal to 90% of the difference of (A) the difference of the Closing Working Capital Amount minus the PP&E Adjustment, minus (B) the Estimated Working Capital Amount and (y) the Buyer shall deposit into escrow as additional Escrow Consideration an amount equal to 10% of the difference of (A) the difference of the Closing Working Capital Amount minus the PP&E Adjustment minus (B) the Estimated Working Capital Amount. (e) In the event that any dispute shall arise as to the manner of preparation or the accuracy of the Closing Balance Sheet or Closing Statement prior to the expiration of the Review Period, the Buyer shall provide the Seller with written notice of each disputed item. In the event of such a dispute, the Buyer and the Seller shall attempt to reconcile in good faith their differences as to such items within twenty (20) calendar days (the "RESOLUTION PERIOD") of the Seller's receipt of such notice, and any resolution by them as to any disputed items shall be final, binding and conclusive on the Seller and the Buyer. If the Buyer and the Seller are unable to reach a resolution within the Resolution Period, the Buyer and the Seller shall submit the dispute to the Independent CPA. The determination of such dispute by the Independent CPA shall be final, binding and conclusive on the parties. The fees and expenses of the Independent CPA shall be assessed by the Independent CPA fifty percent (50%) against the Seller and Zygo, jointly and severally, and fifty percent (50%) against the Buyer, and shall be paid by each of them in those proportions; provided, however, that the prevailing party shall not be responsible for any portion of the fees and expenses of the Independent CPA if the Independent CPA's decision causes the Closing Working Capital Amount determined pursuant to this paragraph (e) to be less than 90% of the Closing Working Capital Amount determined pursuant to paragraph (b) of this Section 3.2, in the case of the Buyer, or not less than 90% of the Closing Working Capital Amount determined pursuant to paragraph (b) of this Section 3.2, in the case of the Seller. Page 15 3.3. Allocation of Aggregate Consideration. The parties will cooperate with each other to prepare a schedule within sixty (60) days after the Closing allocating the Aggregate Consideration among the Purchased Assets. The parties hereto acknowledge and agree that such allocation will reflect the respective fair market values of the Purchased Assets and that they will not take a position inconsistent with such allocation for federal, state or local Tax purposes. 3.4. Escrowed Consideration. At the Closing, the Buyer shall deliver to State Street Bank and Trust Company or any successor escrow agent (the "ESCROW AGENT"), the Escrowed Consideration, such Escrowed Consideration to be held by the Escrow Agent to secure the payment of indemnification payable to the Buyer hereunder by reason of the breach of any of the representations and warranties of the Seller or Zygo or failure of the Seller or Zygo to perform any of their obligations hereunder (the "ESCROW"). Such Escrow shall terminate upon the one year anniversary of the Closing Date. In order to set forth the terms and conditions of the Escrow, the Buyer, the Seller and the Escrow Agent shall enter into an Escrow Agreement, substantially in the form attached hereto as Exhibit C. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND ZYGO Except as set forth on the Schedules attached hereto specifically identifying the relevant Section and paragraph hereof and as otherwise specifically referenced in such Schedules, each of the Seller and Zygo hereby, jointly and severally, represent and warrant to the Buyer as follows: 4.1. Organization and Qualification of the Seller. (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado, with full power and authority to own, operate or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it except where the failure of which would not have a Material Adverse Effect. The copies of the Seller's Constituent Documents which are attached as Schedule 4.1 hereto, are complete and correct. The Seller is duly qualified to do business and in good standing as a foreign corporation in each of the jurisdictions identified on Schedule 4.1 and it is not required to be licensed or qualified to conduct its business or own its property in any other jurisdiction except where the failure of which would not have a Material Adverse Effect. (b) Zygo is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to own, operate or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it except where the failure of which would not have a Material Adverse Effect. The copies of Zygo's Constituent Documents, which are attached as Schedule 4.1 hereto, are complete and correct. 4.2. Authority; No Violation. The Seller and Zygo have all requisite corporate power and authority to enter into and deliver this Agreement and each Ancillary Document to which it is a party and to carry out the transactions and perform its obligations contemplated Page 16 hereby and thereby. The execution, delivery and performance of this Agreement and each Ancillary Document to which the Seller and Zygo are a party by the Seller and Zygo and all transactions contemplated herein and therein have been duly and validly authorized and approved by all necessary corporate action of the Seller and Zygo. Each such agreement constitutes the legal, valid and binding obligation of the Seller and Zygo, enforceable in accordance with its terms except: (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (b) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Assuming the accuracy of the representations and warranties of the Buyer hereunder, the entering into of this Agreement and the Ancillary Agreements to which it is a party by the Seller and Zygo does not, and the consummation by the Seller of the transactions contemplated hereby and thereby will not: (i) violate the provisions of any Law or Court Order; (ii) violate any provision of the Seller's Constituent Documents or Zygo's Constituent Documents; (iii) breach, result in a default or acceleration of any obligation under, or cause the loss of any right under, any material contract, agreement, license, lease, instrument, indenture, order, arbitration award, judgment, or decree to which the Seller or Zygo are parties or by which the Seller or Zygo are bound, or to which the Seller's properties (other than the Excluded Assets) are subject; (iv) violate or conflict with any resolution adopted by the Board of Directors or the stockholders of either Seller or Zygo; (v) violate any legal requirement or Court Order to which the Seller or Zygo or any of the assets or properties owned or used by the Seller is subject except, where such violation, individually or in the aggregate, would not have a Material Adverse Effect; or (vi) violate any Governmental Authorization which is held or used by the Seller except, where such violation, individually or in the aggregate, would not have a Material Adverse Effect. The execution, delivery and performance of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby do not require the consent, waiver, approval, authorization, exemption of or giving of notice to any Governmental Authority except as otherwise provided for in this Agreement or where failure to receive such consent, waiver, approval, authorization or exemption or give such notice, individually or in the aggregate, would not have a Material Adverse Effect. 4.3. Capitalization. Seller is a wholly-owned subsidiary of Zygo. 4.4. Subsidiaries; Other Investments. Seller does not own, directly or indirectly, any capital stock or ownership interest of any corporation or other business organization. The Seller is not a partner or participant in any joint venture or partnership of any kind. Page 17 4.5. Financial Statements. (a) Attached as Schedule 4.5(a) hereto are the Seller's unaudited Balance Sheets as of June 30, 2001, June 30, 2000 and October 26, 2001 and Statements of Operations and Cash Flows for the two years ending June 30, 2001 and the four months ending October 26, 2001 (the "SELLER'S UNAUDITED FINANCIAL STATEMENTS"), all of which statements (including any notes thereto) are complete and correct in all material respects and present fairly the assets, liabilities and financial position of the Seller on the date of such statements, and the results of operations and changes in the financial condition of the Seller for the periods covered thereby. The Seller's Unaudited Financial Statements have been prepared in accordance with GAAP (except for the absence of footnotes and subject to year-end adjustments), consistently applied throughout the periods involved and prior periods. (b) The books of account of the Seller for the periods referenced in Section 4.5(a) are complete and correct in all material respects and have been maintained on a consistent basis. Neither the Seller nor Zygo has received any auditor's letters to management with comments specifically relating to Seller for such periods except for those letters identified on Schedule 4.5(b), complete and correct copies of any comments specifically relating to Seller contained in any such letters have been provided to Buyer. 4.6. Absence of Undisclosed Liabilities. There are no material liabilities of any nature, known or unknown, with respect to the Seller, whether accrued, absolute, contingent or otherwise (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for Taxes due or then accrued or to become due), except: (a) liabilities stated or adequately reserved against on the Base Balance Sheet; (b) liabilities incurred since the Base Balance Sheet Date in the ordinary course of business consistent with past practices, which liabilities, to the extent outstanding on the Closing Date, will be reflected on the Closing Balance Sheet; and (c) liabilities disclosed on Schedule 4.6 hereto. 4.7. Conduct of Business; Absence of Certain Changes. Since the Base Balance Sheet Date, the Seller has conducted its business only in the ordinary course, consistent with prior practices and, whether or not in the ordinary course of business, there has not been any change in the financial condition (including working capital, earnings, reserves, properties, assets, liabilities, business or operations), of the Seller which change, by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had a Material Adverse Effect on the Seller. Without limiting the generality of the foregoing, except as disclosed on Schedule 4.7 hereto, since the Base Balance Sheet Date there has not been: (a) any amendment or other modification to the Constituent Documents of the Seller or Zygo; (b) any contingent liability incurred by the Seller as guarantor or otherwise, with respect to the obligations of others; (c) any sale, lease or other disposition, or any agreement or other arrangement for the sale, lease or other disposition, of any of asset or property of the Page 18 Seller with a value individually, or in the aggregate, in excess of $25,000, other than in the ordinary course of business consistent with past practice; (d) any Encumbrance placed on any of the Purchased Assets which remains in existence on the date hereof; (e) any obligation or liability incurred by the Seller, other than obligations and liabilities incurred in the ordinary course of business consistent with past practice; (f) any entry into Contracts or agreements by the Seller, except contracts made in the ordinary course of business consistent with past practices; (g) any entry into, termination of, or receipt of notice of termination of any Contract or transaction involving a total remaining commitment by or to the Seller of at least $25,000 including the entry into: (i) any document evidencing any indebtedness; (ii) any capital or other lease; or (iii) any guaranty; (h) cancellation, compromise, release or waiver of any debt, claim or right with a value to the Seller in excess of $25,000; (i) creation, incurrence or assumption of any indebtedness for borrowed money or guarantee of any obligation by the Seller in an aggregate amount in excess of $25,000, except for endorsements of negotiable instruments for collection in the ordinary course of business; (j) payment, discharge or satisfaction of any material obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except for any current liabilities, and the current portion of any long-term liabilities, shown on the Base Balance Sheet (or not required as of the date thereof to be shown thereon in accordance with GAAP) or incurred since the date of the Base Balance Sheet in the ordinary course of business consistent with past practice; (k) institution or settlement of any Proceeding before any Governmental Authority relating to the Seller; (l) except in the ordinary course of business consistent with past practice, commitment by the Seller to provide services or goods for an indefinite period or a period of more than six (6) months; (m) any capital investment, capital expenditure, commitment or capital improvement, addition or betterment in amounts which exceed $10,000 in the aggregate or lease or agreement to lease assets with an annual rental which exceeds $25,000 in the aggregate; Page 19 (n) any damage to or destruction of any asset or property of the Seller whether covered by insurance or not, or loss of any customer, which would have a Material Adverse Effect on Seller; (o) any declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of the Seller, direct or indirect redemption, purchase or other acquisition by the Seller of their capital stock, or any issuance of any securities of the Seller; (p) except with regards to officers and directors of the Seller who are employees of Zygo and as otherwise contemplated by this Agreement, Schedule 4.7(p) sets forth any (i) increase in the rate of compensation or bonus amounts payable or to become payable by the Seller to any of its directors, officers, employees or consultants; or (ii) any material increase in any pension or profit sharing payment, entitlement or arrangement made by the Seller to or with any of such directors, officers, employees or consultants; or (iii) any grant by the Seller of any loans (other than under a tax qualified retirement plan), advances or severance or termination pay; (iv) entry into or amendment by the Seller of any material employment, consultant, severance or similar contract with any such director, officer, employee or consultant; (v) payment of any bonuses, salaries (other than in the ordinary course of business) or other compensation by the Seller to any such officer, consultant or employee; or (vi) material increase in the benefits under, or adoption of, any Employee Benefit Plan for the benefit of employees of the Seller; (q) any material change with respect to the management or supervisory personnel of the Seller; (r) any payment or discharge of a material Encumbrance, claim, obligation or liability of the Seller which was not shown on the Base Balance Sheet or incurred in the ordinary course of business thereafter; (s) any acquisition of any capital stock or other securities of or any ownership interest in, or a significant portion of the assets of, any other business enterprise; (t) any write-downs of the value of any inventory included in the Purchased Assets (including write-downs by reason of shrinkage or mark-down) or write-offs as uncollectible of any notes or accounts receivable included in the Purchased Assets, except for write-downs or write-offs that are in the aggregate less than $25,000 incurred in the ordinary course of business; (u) any disposal, sale, assignment, license or lapse of any rights to the use of any material Intellectual Property Asset, or the license or disposal, sale, assignment, or disclosure to any person other than the Buyer or any Page 20 Affiliate of Buyer of any material trade secret, technology, formula, process, know-how or other confidential information not theretofore a matter of public knowledge other than pursuant to confidentiality agreements; (v) any change in any method of accounting or accounting practice except as required by GAAP; or (w) any agreement, whether in writing or otherwise, to take any action described in this Section 4.7. 4.8. Payment of Taxes. (a) The Seller has filed or caused to be filed with the appropriate Tax Authorities in a timely manner all Tax returns, reports and forms, statements, declarations, claims for refund, and other documents and information with respect to Taxes, including any schedule or attachment thereto, and including any amendment thereof ("RETURNS") required to be filed by them with a Tax Authority. (b) The information reported on such Returns is complete and accurate. (c) The Seller has paid or has had paid on its behalf, on a timely basis and in full all Taxes or made adequate provision in the Seller's financial statements for all Taxes (whether or not shown on any Return) required to be paid by it (including any Taxes of another Person for which the Seller may have liability pursuant to Treasury Regulation Section 1.1502-6, or any similar provision of state, local, or foreign law, as a transferee or successor, by contract or otherwise). (d) There are no Encumbrances for Taxes upon the assets or properties of the Seller other than for Taxes not yet due and payable. (e) Except as disclosed on Schedule 4.8(e) hereto, no deficiencies for Taxes have been claimed, proposed, or assessed in writing or otherwise to the Seller's knowledge by any Tax Authority or other Governmental Authority with respect to the Seller, and there are no pending or, to the Seller's knowledge, threatened audits, investigations or claims for or relating to any liability in respect of Taxes of the Seller. (f) The Seller has no examination reports and statements or notices of deficiency asserted, proposed, or assessed against or agreed to by the Seller. (g) There are no outstanding Contracts or written waivers with respect to the Seller extending the statutory period of limitation applicable to any Taxes, and the Seller has not requested any extension of time within which to file any Return, which has not yet been filed. (h) The Seller has withheld and timely paid to the appropriate Tax Authority all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third Person. Page 21 4.9. Title to Properties; Encumbrances; Condition of Properties. (a) The Purchased Assets do not include any real property. The Seller does not and has never owned real property. Set forth on Schedule 4.9(a) hereto is a listing of all real property leased by the Seller, including a description of the real estate and any Encumbrances on the property (collectively, the "MATERIAL REAL PROPERTY"). (b) Set forth on Schedule 4.9(b) hereto is a listing of: (i) all machinery, equipment and other tangible personal property with an original cost in excess of $25,000 used or owned by the Seller; and (ii) a listing of all leases under which the Seller leases any personal property requiring annual rental payments in excess of $25,000, together with a description of such property (collectively, the "MATERIAL PERSONAL PROPERTY"). Schedule 4.9(b) hereto lists all locations where Material Personal Property is located. (c) Except for assets or properties acquired since the Base Balance Sheet Date and set forth on Schedule 4.9(c) hereto, all of the assets and properties of the Seller are reflected on the Base Balance Sheet (except to the extent not required to be so reflected by GAAP). The only intangible assets and properties owned or used by the Seller are Intellectual Property Assets described in Section 4.12. The Purchased Assets include all of the assets owned or leased by the Seller that are useful in its business. (d) The Seller is in material compliance with all terms and conditions of each lease of Material Real Property or Material Personal Property and to the Seller's Knowledge, no event has occurred nor does any circumstance exist that (with or without notice or the passage of time or both) would constitute a material violation or default under any such lease and the Seller has not given or received notice of any alleged violation or of any default under any such agreement. (e) The Seller has good and marketable title to all of its owned personal property included in the Purchased Assets. None of the Material Real Property or Material Personal Property owned by the Seller is subject to any Encumbrance (other than the Permitted Encumbrances) of any kind against Seller's rights in such property. (f) To the knowledge of the Seller to the extent the Material Personal Property is used by the Seller but owned by a third party, there are no Encumbrances (other than Permitted Encumbrances) of any kind against such third party's rights in such property. (g) All buildings, machinery and equipment included in the Purchased Assets are in satisfactory condition, are presently in working order and repair, normal wear and tear excepted, and are adequate for the uses to which they are being put, and have been adequately maintained. (h) There are no outstanding contracts, agreements or understandings made by the Seller for the construction or repair of any improvements to the Material Real Property that have not been fully paid for. Page 22 (i) The Seller has not received any written notice from any insurance carrier of any defects or inadequacies in the Material Real Property, or in any portion thereof, that to their knowledge would adversely affect the insurability thereof or the cost of such insurance, or that requires corrective action. There are no pending insurance claims of the Seller related to the Material Real Property. 4.10. Collectibility of Receivables. All of the accounts receivable, trade accounts, notes receivable, contract receivables and other receivables ("RECEIVABLES") of the Seller shown or reflected on the Base Balance Sheet are, and those to be reflected on the Closing Balance Sheet will be: (a) valid and enforceable claims which arose out of transactions with Persons who are not affiliated with the Seller; (b) fully collectible net of reserves within one hundred twenty (120) days of invoice date through normal means of collection; and (c) subject to no set-off, defense or counterclaim. 4.11. Inventories. (a) All inventories of finished goods and raw materials of the Seller reflected on the Base Balance Sheet ("INVENTORIES") are, and those to be reflected on the Closing Balance Sheet will be, of a quantity and quality normally salable in the ordinary course of business at commercially reasonable prices consistent with the Seller's prior experience, except to the extent of the obsolete inventory reserve in the amount shown on the Base Balance Sheet or to be shown on the Closing Balance Sheet. All Inventories are valued on a lower of cost or market basis and in accordance with the Seller's normal valuation methods and policies, consistently applied, which methods and policies are in accordance with GAAP. Purchase commitments for raw materials and parts are consistent with past practice and none are at prices in excess of current market prices. The aggregate of all outstanding purchase commitments issued by Seller with respect to its business (including all contracts or commitments for the purchase by the Seller of materials or other supplies) is not more than $1,500,000. Except as set forth on Schedule 4.11 hereto, since the date of the Base Balance Sheet, no Inventories have been sold or disposed of except through sales in the ordinary course of business at prices no less than prevailing market prices and in no event less than cost. (b) Except for the UMC Machine, all inventories of finished goods existing on the Base Balance Sheet Date and on the Closing Date and included in the Purchased Assets will be salable on or before the date 180 days after the Closing Date, in a manner consistent with the Seller's normal and ordinary course of business and consistent with the past practices of the Seller. 4.12. Intellectual Property Assets. (a) The Seller: (i) owns all right, title and interest in and to each of the Owned Intellectual Property Assets, free and clear of all Encumbrances; and (ii) licenses or otherwise possesses legally valid and enforceable rights to use each of the Licensed Intellectual Property Assets for its business, and, in each case of clause (i) or (ii), the Seller may transfer such rights to Buyer as contemplated by this Agreement. To the extent that Seller has determined in the ordinary course of its operations that the filing, recordation or maintaining of any right in the Page 23 Intellectual Property Assets is useful or required by law, the Seller has made all filings and recordations necessary to protect and maintain its interest in such right. (b) Schedule 4.12(b) hereto contains a true, correct and complete list and summary description, including any royalties paid or received by the Seller, of all contracts, agreements or understandings relating to the Intellectual Property Assets to which Seller is a party or by which Seller is bound. Other than as set forth on Schedule 4.12(b), Seller is not and will not be as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in breach or violation of any agreement described on Schedule 4.12(b). Each license of Intellectual Property Assets listed in Schedule 4.12(b) is valid, subsisting, and enforceable, and shall continue in effect on its current terms upon consummation of the transactions contemplated by this Agreement. (c) Schedule 4.12(c) hereto contains a true, correct and complete list of all registrations and pending applications for Patents. All such Patents are valid and subsisting and up to and including the Closing Date, all maintenance fees, annuities and the like have been paid. To the knowledge of the Seller, none of the Patents is infringed or has been challenged or threatened in any way by any Person. (d) (i) Schedule 4.12(d) hereto contains a true, correct and complete list of all Marks; (ii) all Marks are valid and subsisting; (iii) to the knowledge of the Seller, none of the Marks is infringed; (iv) none of the Marks has been challenged or threatened in any way by any Person, and no claims exist against the use by the Seller of any Marks in their business as currently conducted or, to the knowledge of the Seller as proposed to be conducted; (v) to the extent that Seller has determined in the ordinary course of its operation that marking is useful, [all materials encompassed by the Marks have been marked with appropriate trademark and registration notices;] and (vi) to the knowledge of the Seller, all uses of registered Marks are in conformance with applicable statutory and common law so as not to compromise the strength and integrity of the Marks. (e) (i) Schedule 4.12(e) hereto contains a true, correct and complete list of all registered Copyrights; (ii) all the Copyrights owned by the Seller, whether or not registered, are valid and enforceable; (iii) to the knowledge of the Seller, none of the Copyrights is infringed or has been challenged or threatened in any way; (iv) no claims exist against the use by the Seller of any writings or other expressions used in their business as currently conducted or as proposed to be conducted; and (v) to the extent that Seller has determined in the ordinary course of its operation that marking is useful, all works encompassed by the Copyrights have been marked with appropriate copyright notices. (f) Except as set forth on Schedule 4.12(f) hereto, the Seller has taken reasonable precautions to protect the secrecy, confidentiality and value of its Trade Secrets. To the knowledge of the Seller, the Trade Secrets have not been used, divulged or appropriated either for the benefit of any Person (other than the Seller) or to the detriment of the Seller. None of the Trade Secrets is subject to any material adverse claim or, to the knowledge of the Seller, has been challenged or threatened in any way. Appropriate policies are in place to ensure the continued secrecy, confidentiality and value of the Trade Secrets, including, but not limited to, Page 24 appropriate marking of Trade Secrets as "proprietary" and/or "confidential"; appropriate limiting of access to Trade Secrets by employees on a "need-to-know" basis; and appropriate confidentiality provisions in agreements executed by employees, contractors, joint venturers and any and all Persons potentially or actually having access to Trade Secrets. (g) None of the products or technology used, sold, offered for sale or licensed or to the knowledge of the Seller proposed for use, sale, offer for sale or license by the Seller infringes or is alleged to infringe any proprietary rights owned, possessed or used by any Person. (h) To the knowledge of the Seller, no Intellectual Property Asset is subject to any outstanding Court Order, Proceeding (other than pending applications for patent, trademark registration or copyright registration) or stipulation restricting in any manner the licensing thereof by the Seller. Seller has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual Property Asset. (i) All employees, contractors and consultants of the Seller have executed a nondisclosure and agreement to assign inventions in the form attached to Schedule 4.12(i) hereto to protect the confidentiality and to vest in the Seller exclusive ownership of such Intellectual Property Assets. To the knowledge of the Seller, no employee, contractor, agent or consultant of the Seller has used any trade secrets or other confidential information of any other person in the course of their work for the Seller. The Seller has written or oral agreements with employees, contractors, agents or consultants with respect to the ownership of the Intellectual Property Assets created by them as a result of which any such employee, contractor, agent or consultant may have exclusive or nonexclusive rights to the portions of the Intellectual Property Assets so created by such individual. (j) To the knowledge of the Seller, no officer, employee, contractor, agent or consultant of the Seller is, or as a result of this Agreement is expected to be, in violation of any term of any employment contract, patent disclosure agreement, proprietary information agreement, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or agreement or any restrictive covenant relating to the right of any such officer, employee, contractor, agent or consultant to be employed or engaged by the Seller because of the nature of the business conducted or to be conducted by the Seller or relating to the use of trade secrets or proprietary information of others, and to the Seller's knowledge and belief, the continued employment or retention of its officers, employees, contractors, agents or consultants does not subject the Seller to any liability with respect to any of the foregoing matters. (k) Except as set forth on Schedule 4.12(k), the Seller has not deposited, and is not obligated to deposit, any source code regarding its products into any source code escrows or similar arrangements and the Seller is not under any contractual obligation to disclose the source code or any other material proprietary information included in or relating to its products. Page 25 4.13. Contracts and Commitments. (a) Schedule 4.13(a) contains a complete and accurate list, and the Seller has delivered to Buyer true, correct and complete copies, of: (i) each Contract involving payments of at least $50,000 that involves performance of services or delivery of goods or materials by the Seller; (ii) each Contract involving payments of at least $50,000 that involves performance of services or delivery of goods or materials to the Seller; (iii) each Contract providing for the purchase of all or substantially all of its requirements of a particular product from a supplier; (iv) each Contract for joint marketing, teaming or development; (v) each Contract with any dealer, franchiser, original equipment manufacturer, value-added reseller, or manufacturer's representative; (vi) each Contract pertaining to the Seller's maintenance or support of its products, services or supplies; (vii) each Contract for the sale of its products not made in the ordinary course of business; (viii) each Contract with any sales agent or distributor of products of the Seller; (ix) each Contract for a license (other than off-the-shelf, fully paid up, shrink wrap software licenses) or franchise (as licensor or licensee or franchisor or franchisee); (x) each Contract involving any arrangement or obligation with respect to the return of products other than on account of a defect in condition, or failure to conform to the applicable Contract; (xi) each Contract with the United States government; (xii) each Contract which is material to the assets or business of the Seller considered as one enterprise; (xiii) each lease, license and other Contract affecting any leasehold or other interest in any Material Real Property or Material Personal Property to which the Seller is a party; Page 26 (xiv) each licensing agreement or other Contract to which the Seller is a party with respect to Intellectual Property Assets, including agreements with current or former employees, consultants or contractors regarding the use or disclosure of any Intellectual Property Assets; (xv) each joint venture, partnership and other Contract involving a sharing of profits, losses, costs or liabilities by the Seller with any other Person or requiring the Seller to make a capital contribution; (xvi) each Contract to which the Seller is a party containing covenants that in any way purport to restrict the business activity of the Seller or any of the employees of the Seller or limit the freedom of the Seller or any of the employees to engage in any line of business or to compete with any Person or hire any Person; (xvii) each employment or consulting agreement between the Seller and its employees and consultants (other than agreements that are terminable on 30 days notice or less without penalty); (xviii) each agreement (other than agreements entered into in connection with any Employee Benefit Plan) between the Seller and an officer or director of the Seller; (xix) each power of attorney granted by the Seller that is currently effective and outstanding; (xx) each Contract for capital expenditures by the Seller in excess of $25,000; (xxi) each stock purchase, merger or other similar agreement pursuant to which the Seller acquired any material amount of assets (other than capital expenditures), and all relevant documents and agreements delivered in connection therewith; (xxii) each material agreement to which the Seller is a party containing a change of control provision applicable to the transactions contemplated by this Agreement; (xxiii) each other agreement to which the Seller is a party having an indefinite term or a fixed term of more than one (1) year (other than those that are terminable at will or upon not more than thirty (30) days' notice by the Seller without penalty) or requiring payments by the Seller of more than $50,000 per year; and (xxiv) each standard form of agreement pursuant to which the Seller provides services or goods to customers. Page 27 (b) Each of the Acquired Contracts and Expected Assigned Contracts to which the Seller is a party is valid, binding and enforceable against the Seller and, to the knowledge of the Seller, against the other parties thereto (except: (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (b) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought). The Seller is in material compliance with all terms and conditions of each Acquired Contract and Expected Assigned Contract. Except as set forth on Schedule 4.13(b) hereto, no event has occurred or circumstance exists that (with or without notice or the passage of time or both) would constitute a material violation of or default under any Acquired Contract or any Expected Assigned Contract by the Seller or, to the knowledge of the Seller, by the other party or parties thereto, and the Seller has not given or received notice of any alleged violation of or default under any such Acquired Contract and Expected Assigned Contract. Except as listed on Schedule 4.13(b)(1) hereto, neither the execution and delivery of this Agreement by the Seller nor the consummation or performance by the Seller of the transactions contemplated hereby will, directly or indirectly, with or without notice or lapse of time or both give rise to a right of termination, cancellation or acceleration or require the consent, authorization or approval of or any notice to or filing with any third Person under any Acquired Contract or Expected Assigned Contract. Except as described in Schedule 4.13(b)(2) hereto, the Seller has not received prepayments of any kind on any Acquired Contract or Expected Assigned Contract. (c) Except as set forth on Schedule 4.13(c) hereto, to the knowledge of the Seller, the Seller is not a party to any Acquired Contract or Expected Assigned Contract or order for the sale of goods or the performance of services which, if performed by the Seller in accordance with its terms, could only be performed with a negative gross profit margin or which has no reasonable likelihood of being performed within the time limits therein provided. (d) Except as set forth in Schedule 4.13(d) since June 30, 2001, the Seller has not experienced any termination, cancellation, limitation or modification or change in any business relationship with any material supplier or customer, and the Seller has not received notice nor otherwise has knowledge that any material customer or supplier intends to cease, or materially reduce or change the terms of, doing business with the Seller or to terminate any agreement with the Seller where such action has had or would have a Material Adverse Effect on the business of the Seller. Schedule 4.13(d) hereto lists every material customer or supplier of the Seller and the amount of business with that customer. To the knowledge of the Seller, there are no facts or circumstances (except general economic, regulatory or political conditions, including general economic conditions in the semiconductor industry except in each case to the extent Seller is disproportionately affected), including the consummation of the transactions contemplated by this Agreement, that are reasonably likely to result in the loss of any material customer or material supplier of the Seller or a material change in the relationship of the Seller with such a material customer or a material supplier. For purposes hereof, "material customers" mean the top 15 customers of the Seller based upon revenue recognized since July 1, 2000. For purposes hereof, "material suppliers" mean the top 15 suppliers to the Seller based upon expenses incurred or accrued since July 1, 2000. Page 28 (e) The backlog of the Seller (including all accepted and unfulfilled sales orders) is not materially less than the backlog amount for the Seller set forth on Schedule 4.13(e) hereto, the amount of backlog as of November 15, 2001. All such sales and purchase commitments were made in the ordinary course of business. 4.14. Employees. Except with regard to officers and directors of the Seller who are employees of Zygo, Schedule 4.14 hereto sets forth a true and complete list of: (a) all current employees of the Seller; (b) all current employees of the Parent and ZYGOLOT GmbH that materially support the Seller's business at any time during the last two years and (c) all technical and business consultants and independent contractors retained by the Seller currently or since June 30, 2001. Also shown on Schedule 4.14 is the name, job title, base salary or rate of base compensation (including any increase therein since the Base Balance Sheet Date), bonus (including any increase therein since the Base Balance Sheet Date), vacation accrued, and hire date for each persons listed on Schedule 4.14 (the "EMPLOYEE SCHEDULE"). 4.15. Labor and Employee Relations. (a) Complete and accurate copies of all written employment and consulting agreements of the persons required to be listed on the Employee Schedule to which the Seller is a party or of which the Seller is a beneficiary have been made available to the Buyer. (b) Except as shown on Schedule 4.15(b) hereto: (i) none of the employees of the Seller are covered by any collective bargaining agreement with any trade or labor union, employees' association or similar association or any industry-wide labor agreement; (ii) no labor organization or group of employees has made a pending demand for recognition; and (iii) there is no organizing activity involving the Seller pending by any labor organization or group of employees. There are no representation elections, arbitration proceedings, labor strikes, slowdowns or stoppages, material grievances, lockouts, or other labor troubles pending, or threatened, with respect to the employees of the Seller, nor has the Seller experienced any work stoppage or other material labor difficulty during the three (3) years immediately preceding the date of this Agreement. (c) Except as set forth on Schedule 4.15(c) hereto, the Seller has complied in all material respects with all applicable Laws of each relevant jurisdiction relating to the employment of labor, including, without limitation, those relating to dismissal, redundancy, minimum notice, wages, hours, unfair labor practices, discrimination, civil rights, plant closings, immigration and the collection and payment of social security and similar taxes. (d) Except as set forth on Schedule 4.15(d) hereto, there are no complaints that have been served in writing to the Seller by or on behalf of any employee or former employee of Seller and, to the Seller's knowledge, there are no proceedings against the Seller pending or threatened before any Governmental Authority, by or on behalf of any employee or former employee of the Seller. (e) Except as set forth on Schedule 4.15(e) hereto, the Seller has paid in full (or made provisions for payment in full) to its employees, agents and contractors all wages, Page 29 salaries, commissions, bonuses and other direct compensation for all services performed by them. The Seller has not and will not have on the Closing Date, any contingent liability for sick leave, vacation time, holiday pay, severance pay or similar items, whether arising as a matter of law, labor agreement, or otherwise, other than as set forth on the Base Balance Sheet or arising after the date thereof in the ordinary course of business consistent with past practices and set forth on the Closing Balance Sheet. (f) Except as set forth on Schedule 4.15(f) hereto, since January 1, 2000 there has not been any fine or penalty imposed or asserted against the Seller under any laws (whether national, regional or local) of any applicable jurisdiction relating to employment, immigration or occupational safety matters. 4.16. Employee Benefits. (a) Schedule 4.16(a) hereto sets forth a true and complete list or brief description of each Employee Benefit Plan maintained or sponsored by the Seller or Zygo applicable to any individual identified on the Employee Schedule (other than pursuant to Section 4.14(b)). (b) "ERISA AFFILIATE" means any entity (whether or not incorporated) other than the Seller that, together with the Seller, is a member of: (i) a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) a group of trades or businesses under common control within the meaning of Section 414(c) of the Code; or (iii) an affiliated service group within the meaning of Section 414(m) of the Code. (c) Neither the Seller nor any ERISA Affiliate maintains, nor during the last six years has maintained or contributed to, an Employee Benefit Plan subject to Title IV of ERISA (including a multiemployer plan) and no facts exist under which the Seller could be expected to incur any liability under Title IV of ERISA. (d) The Seller has not received notice of and is not aware of any Proceeding (other than routine claims for benefits) pending or threatened with respect to any Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan, and, to the knowledge of the Seller, there are no facts that could give rise to any such Proceeding. To the knowledge of the Seller, there has not occurred any circumstances by reason of which the Seller may be liable for an act, or a failure to act, by a fiduciary with respect to any Employee Benefit Plan. (e) To the knowledge of the Seller, there are no complaints, charges or claims against the Seller pending or threatened to be brought by or filed with any Governmental Authority in connection with or relating to the classification of any individual by the Seller as an independent contractor or "leased employee" (within the meaning of Section 414(n) of the Code) rather than as an employee. (f) Except as set forth on Schedule 4.16(f) or as otherwise contemplated by this Agreement, the consummation of the transactions contemplated by this Agreement will Page 30 not, alone or together with any other event, (A) entitle any employee or former employee of the Seller to any payment, (B) result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee or former employee of the Seller, or (C) result in any parachute payment under Section 280G of the Code, whether or not such payment is considered reasonable compensation for services rendered. (g) No Employee Benefit Plan is a "multiple employer plan" as described in Section 3(40) of ERISA or Section 413(c) of the Code. 4.17. Environmental Matters. (a) Except as disclosed on Schedule 4.17(a) hereto, any Hazardous Materials used or generated by the Seller in connection with the operation of the Purchased Assets are being generated, used, stored, treated and disposed on and at its Longmont, Colorado facility in compliance in all material respects with all applicable Laws, Court Orders, Government Authorizations, including Environmental Laws. The Seller is in compliance in all material respects with all Environmental Laws with respect to the operation of the Purchased Assets. (b) Except as set forth on Schedule 4.17(b) hereto, the Seller is not subject to any Court Order, or has not received, or, to the knowledge of the Seller, become subject to any written claim, notice, complaint or request for information from any Governmental Authority of the United States or other relevant Governmental Authority or any private party with respect to the operation of the Purchased Assets: (i) alleging a violation of or noncompliance with any Environmental Law; (ii) asserting potential liability under any Environmental Law; or (iii) requesting investigation or clean-up of any Environmental Site under any Environmental Law. (c) Except as disclosed in Schedule 4.17(c) hereto, no Hazardous Materials used or generated by the Seller, have been, or are being spilled, released, discharged, disposed, placed, leaked, or otherwise caused to become located in the air, soil or water in, under or upon an Environmental Site or any land adjacent thereto in material violation of any Environmental Law. (d) Except as disclosed in Schedule 4.17(d) hereto, to the knowledge of Seller, Seller has not received any notice that any sites or facilities to which any Hazardous Materials generated by Seller in connection with the operation of the Purchased Assets have been shipped or sent to are subject to or threatened to become subject to any governmental response action or clean up order. The Seller has made available for inspection by Buyer copies of all manifests, bills of lading and other receipts or evidence documenting disposal or recycling of Hazardous Materials and sales receipts of the process by-products relating to operations of the Purchased Assets. (e) Except as set forth on Schedule 4.17(e) hereto, the Seller has not treated, stored for more than ninety (90) days, or disposed of any hazardous materials (as that term is defined under RCRA) on any Environmental Site. Page 31 (f) Except as disclosed in Schedule 4.17(f) hereto, Hazardous Materials have been collected, managed, recycled, shipped and disposed by the Seller in material compliance with all Environmental Laws. (g) All underground tanks and other waste storage facilities for Hazardous Materials located at any Environmental Site are disclosed in Schedule 4.17(g) hereto, and copies of all notifications made to federal, state or local authorities pursuant to Environmental Laws relating to underground storage tanks have been made available to the Buyer. As of the date hereof, none of such tanks and other underground storage facilities are in violation of any Environmental Law in any respect. (h) Except as disclosed in Schedule 4.17(h) hereto, all wells, water discharges and other water diversions and all air emission sources on any Environmental Site are properly registered and/or permitted, and copies of such permits have been made available to the Buyer and do not violate any applicable law. (i) To the knowledge of Seller the Seller does not produce or use in their products, or purchase or use any material, part, component or subassembly incorporated into their products, containing any chemical or other material to which local packaging and/or disclosure laws apply except as set forth on Schedule 4.17(i) hereto. (j) There are no liens or restrictions under Environmental Laws on any Environmental Site chargeable against the rights of the Seller with respect to any Purchased Assets and, to the knowledge of the Seller, no government actions have been taken or are in process which could subject any such Purchased Assets to such encumbrances, and the Seller would not be required to place any notice or restriction relating to Hazardous Materials at any Environmental Site in any deed to such property except as set forth on Schedule 4.17(k) hereto. (k) The Seller has made available to the Buyer all environmental audits, assessments, questionnaires or studies within the possession of the Seller with respect to the Seller's Longmont, Colorado facility that relate to potential soil or groundwater contamination, or other environmental liabilities, and the results of sampling and analysis of any asbestos, air, soil, or groundwater, undertaken with respect to its Longmont, Colorado facility. (l) Except as disclosed on Schedule 4.17(m) hereto, the Seller's operation of the Purchased Assets is in compliance in all material respects with all federal and state worker safety laws and requirements, including, but not limited to, applicable requirements under the Occupational Safety and Health Act. 4.18. Government Authorizations/Compliance with Laws. (a) The Seller holds all Governmental Authorizations which are required to own its properties and assets and to permit it to conduct its businesses as presently conducted except where failure to hold such Government Authorization would not have a Material Adverse Effect. All such Governmental Authorizations are listed on Schedule 4.18 hereto, together with the applicable expiration date. All such Governmental Authorizations are now, and, will be at Page 32 the Closing, valid and in full force and effect. Except as described on Schedule 4.18 hereto, such Governmental Authorizations are transferable to the Buyer. No proceeding is pending or, to the knowledge of the Seller, threatened seeking the revocation or limitations of any Governmental Authorization. (b) The Seller is in compliance in all material respects with all applicable Laws, Court Orders and Governmental Authorizations affecting in any material respect the assets or properties owned or used by the Seller or the business or operations of the Seller. The Seller has not been charged with violating, or to the knowledge of the Seller, threatened with a charge of violating, nor, to the Seller's knowledge, is the Seller under investigation with respect to a possible violation of, any applicable Law, Court Order or Governmental Authorization relating to any of its or their assets or properties or any aspect of its or their business. 4.19. Warranty or Other Claims. (a) Except as set forth on Schedule 4.19(a)(1) hereto, the Seller does not know of any existing or threatened claims, or any facts upon which a claim is likely to be asserted against it, for services or merchandise which are defective or fail to meet any service or product warranties. No claim has been asserted against the Seller for material renegotiation or price redetermination of any business transaction, and the Seller has no knowledge of any facts upon which any such claim is likely to be asserted. Schedule 4.19(a)(2) describes all of the outstanding product warranty obligations for Seller's products, including product covered, start and end date of such warranty, and a description of Seller's obligations under such warranty. (b) All products that were designed, manufactured or sold and all services that were rendered by the Seller complied with applicable contracts, product specifications, Laws and standards (whether established by the Seller, Governmental Authority or industry), and, to the Seller's knowledge, there are no defects in such products. Schedule 4.19(b) hereto sets forth the Seller's: (i) experience with returns of products sold by it for the preceding fiscal year and for the portion of the current fiscal year (including claims or notices that products may or will be returned, whether by reason of alleged overshipments, defective merchandise or otherwise); and (ii) aggregate expenses incurred by the Seller's customer support and service center in fulfilling its obligations under its guaranty, warranty and right of return provisions during the periods covered by the Seller Unaudited Financial Statements and the Seller knows of no reason why such expenses should significantly increase as a percentage of sales in the future. 4.20. Litigation. Except for matters described in Schedule 4.20 hereto, there is no Proceeding pending (or, to the knowledge of the Seller, threatened) against or otherwise involving the Seller or Zygo or to their knowledge, any of the officers, directors, former officers or directors, employees, shareholders or agents of the Seller or Zygo (in their capacities as such), and there are no outstanding Court Orders to which the Seller is a party or by which any of the Purchased Assets are bound, any of which: (i) question this Agreement or any Ancillary Agreements or any action to be taken hereby or thereby or affect the transactions contemplated hereby or thereby; (ii) materially restrict the present business properties, operations, prospects, assets or condition, financial or otherwise, of the Seller; or (iii) will result in any Material Adverse Effect to the Purchased Assets. The Seller has no reasonable basis to believe that any Page 33 such Proceeding is likely to be brought against the Seller or Zygo, or any of the officers, directors, former officers or directors, employees, shareholders or agents of the Seller. 4.21. Insurance. (a) The Seller maintains: (i) insurance on all of its property (including leased or owned real or personal property) that insures against loss or damage by fire or other casualty (including extended coverage); and (ii) insurance against liabilities, claims and risks of a nature and in such amounts as it believes are appropriate. (b) Except as set forth on Schedule 4.21 hereto, there are no claims pending under any of said policies, or disputes with insurers, and all premiums due and payable thereunder have been paid, and all such policies are in full force and effect in accordance with their respective terms. Schedule 4.21 hereto also sets forth the insurance claims expenses of the Seller for the last two full fiscal years and the current fiscal year. No notice of cancellation or termination has been received with respect to any such policy and there is no basis upon which the insurance company would have the right to terminate any such policy during the policy term and no notice relating to non-renewal, reduction of coverage or increase in premium has been received by the Seller with respect to any such policy. The Seller has not been refused any insurance, nor has its coverage been limited by any insurance carrier with which it has applied for any such insurance or with which it has carried insurance. 4.22. Corporate Books, Records and Accounts. The books, records and accounts of the Seller fairly and accurately reflect transactions and dispositions of assets by the Seller, and the system of internal accounting controls of the Seller is sufficient to assure that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 4.23. Finder's Fee. Except for fees payable to Bear Stearns & Co., Inc., none of the Seller, Zygo or their agents has incurred or become liable for any broker's commission or finder's fee or agent's commissions or financial advisory services or other similar payments relating to or in connection with the transactions contemplated by this Agreement. 4.24. Transactions with Interested Persons. Except as set forth on Schedule 4.24 hereto, no shareholder, Affiliate, officer nor director of the Seller or Zygo, nor to the knowledge of the Seller any spouse or child of any of them or any Person associated with any of them ("RELATED PERSON"), has, in a capacity other than as shareholder, Affiliate, officer or director or employee, any interest in any assets or properties used in or pertaining to the business of the Seller nor has any such Person. Except as set forth on Schedule 4.24 hereto, no Related Person has any claim or right against, or owes any amounts to Seller. To the Seller's or Zygo's knowledge, none of the Affiliates, officers or directors of the Seller or Zygo nor, any employee Page 34 of the Seller or any Related Person has owned, directly or indirectly, and whether on an individual, joint or other basis, any equity interest or any other financial or profit interest in a Person (other than less than two percent (2%) of the outstanding capital stock of a Person subject to the reporting requirements of the Securities Exchange Act of 1934, as amended) that (a) has business dealings with the Seller; or (b) engages in competition with the Seller. 4.25. Absence of Sensitive Payments. The Seller has not, and to the knowledge of the Seller none of the Seller's directors, officers, agents or stockholders or any other person associated with or acting on behalf of any of the Seller have: (a) made or agreed to make any solicitations, contributions, payments or gifts of funds or property to any governmental official, employee or agent where either the payment or the purpose of such solicitation, contribution, payment or gift was or is illegal under the Laws of any applicable jurisdiction or prohibited by the policy of the Seller or of any of their suppliers or customers; (b) established or maintained any unrecorded fund or asset for any purpose, or has made any false or artificial entries on any of its books or records for any reason; or (c) made or agreed to make any contribution or expenditure, or reimbursed any political gift or contribution or expenditure made by any other person to candidates for public office, whether national, regional or local where such contributions were or would be a violation of applicable Law. 4.26. Payables. There has been no Material Adverse Effect upon the Seller since the date of the Base Balance Sheet in connection with the amount or delinquency of accounts payable of the Seller (either individually or in the aggregate). 4.27. Copies of Documents. Complete and correct copies of any underlying documents listed or described in this Article IV or any schedules delivered pursuant to this Article IV, together with all amendments, renewals and modifications related thereto, have been delivered to Buyer to the extent requested by Buyer. 4.28. Sufficiency. Following the Closing, by means of the transfer of the Purchased Assets, Buyer will own, license or otherwise have use of all of the assets reasonably necessary to operate the Seller's business in substantially the same manner operated by Seller, except for the Excluded Assets. 4.29. Disclosure of Material Information. This Agreement does not contain any untrue statement of a material fact, or omit to state a material fact necessary to make the statements herein in light of the circumstances in which they were made not misleading. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to the Seller as follows: Page 35 5.1. Organization of Buyer. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full power and authority to own, operate or lease its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it except when the failure of which would not have a Material Adverse Effect. The copies of Buyer's Constituent Documents, which are attached as Schedule 5.1 hereto, are complete and correct. 5.2. Authorization of Transaction. The Buyer has all requisite corporate power and authority to enter into and deliver this Agreement and each Ancillary Document to which it is a party and to carry out the transactions and perform its obligations contemplated hereby and thereby. The execution, delivery and performance of this Agreement and each of the Ancillary Agreements to which Buyer is a party by Buyer and all transactions contemplated herein and therein have been duly and validly authorized and approved by all necessary corporate action of Seller. Each such agreement constitutes the legal valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except: (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (b) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 5.3. No Conflict of Transaction With Obligations and Laws. (a) Assuming the accuracy of the representations and warranties of the Seller and Zygo hereunder, neither the execution, delivery or performance of this Agreement nor the Ancillary Agreements to which the Buyer is a party, nor the performance of the transactions contemplated hereby and thereby, will: (i) constitute a breach or violation of the Buyer's Constituent Documents; (ii) require any consent, approval or authorization of or declaration, filing or registration with any person other than a Governmental Authority described in paragraph (b) below; (iii) conflict with or constitute (with or without the passage of time or the giving of notice) a breach of, or default under any debt instrument to which the Buyer is a party, or give any person the right to accelerate any indebtedness or terminate, modify or cancel any material right; (iv) constitute (with or without the passage of time or giving of notice) a default under or breach of any other material agreement, instrument or obligation to which the Buyer is a party or by which it or its assets are bound; or (v) result in a violation of any Law or Court Order applicable to the Buyer or its business or assets except, where such breach, violation, default, failure to obtain any consent, approval, authorization or declaration, or make any filing or registration would not individually or in the aggregate, have a Material Adverse Effect. (b) The execution, delivery and performance of this Agreement and the Ancillary Agreements to which the Buyer is a party and the transactions contemplated hereby and thereby by the Buyer do not require the consent, waiver, approval, authorization, exemption of or giving of notice by the Buyer to any Governmental Authority or any Person, except for those: (i) provided for in this Agreement; and (ii) which would not, either individually or in the aggregate, have a Material Adverse Effect upon the Buyer or materially impair or preclude the Buyer's ability to consummate the transactions contemplated by this Agreement. Page 36 5.4. Brokers or Finders. Neither Buyer nor any of its agents has incurred any obligations or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or financial advisory services or other similar payment in connection with this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby. ARTICLE VI. COVENANTS OF THE SELLER The Seller and Zygo, jointly and severally, covenant and agree with the Buyer as follows: 6.1. Access to Information. The Seller and Zygo shall permit representatives of the Buyer to have access (at all reasonable times and in a manner so as not to interfere with the normal business operations of the Seller) to all premises, properties, financial and accounting records, contracts, other records and documents, and personnel of or pertaining to the Seller. No investigation or examination by the Buyer shall diminish, obviate or constitute a waiver of the enforcement of any of the representations, warranties, covenants or agreements of the Seller or Zygo under this Agreement or any of the Ancillary Agreements. 6.2. Governmental Authorizations; Consents. Each of the Seller and Zygo shall use commercially reasonable efforts (with the reasonable assistance of the Buyer to the extent required to obtain such approvals) to obtain promptly: (i) all Governmental Authorizations required to be obtained for the lawful consummation of the Closing; and (ii) the consents necessary to transfer all Governmental Authorizations set forth or required to be set forth on Schedule 4.18 hereto. 6.3. Assignment of Contracts. To the extent that the sale of the Purchased Assets constitutes an assignment under the terms of any contract to which the Seller is a party (including leases for real property) and which is an Acquired Contract or Expected Assigned Contract, or any Governmental Authorization which requires the consent of another party, each of the Seller and Zygo agrees to use commercially reasonable efforts (with the reasonable assistance of the Buyer to the extent necessary to obtain such consents) to obtain the consent of such other party to an assignment in all cases in which consent is required. 6.4. Certain Filings. The Seller shall use its commercially reasonable efforts to assist the Buyer in making all such filings, applications and notices as may be necessary or desirable in order to obtain the authorization, approval or consent of any Governmental Authority which may be reasonably required or which the Buyer may reasonably request in connection with the consummation of the transactions contemplated hereby. 6.5. Product Warranty/Liability. Although the Buyer does not assume any of Seller's product warranty obligations for products sold prior to the Closing Date, the Buyer shall perform the Seller's obligations under the Seller's product warranties described on Schedule 4.19(a)(2) in accordance with the Seller's present policy. The performance by the Buyer of any of the Seller's product warranty obligations for such products shall not give rise to any rights in the Seller. Without limiting the foregoing, at its option after notice to Zygo and ZYGOLOT GmbH, Buyer may perform any installation, warranty, support and training required pursuant to agreements between Zygo and ZYGOLOT GmbH or between ZYGOLOT and Altis (PO 96 - Page 37 project number 640/1), Infineon or Schott relating to the tools sold by ZYGOLOT to such entities, (the "ZYGOLOT TOOLS") The Seller agrees to reimburse the Buyer upon demand for the Buyer's costs in performing Seller's product warranty obligations or installation, warranty, support and training relating to the ZYGOLOT Tools, including, but not limited to, reasonable out-of-pocket costs and internal labor, material and overhead costs at the Buyer's fully loaded cost. Seller may review and reasonably dispute Buyer's demand to ensure that it does not include charges for services that materially exceed Seller's product warranty obligations. In addition, Seller shall keep in force and shall name the Buyer as an additional insured party under the product liability and commercial general and excess liability insurance policies related to the Seller's business ("SELLER'S INSURANCE") as maintained prior to the Closing Date by the Seller for a period continuing after the Closing Date until the second anniversary of the Closing Date. The Seller shall provide the Buyer with evidence of such insurance by delivering one copy of a Certificate of Insurance, completed by its insurance carrier(s) or agents certifying that insurance coverage is in effect and will not be canceled or materially changed until thirty (30) days after written notice. 6.6. Tax Clearance. Promptly upon receipt Zygo shall deliver a receipt from the executive director of the Colorado Department of Revenue showing that all Colorado state taxes relating to Seller have been paid, or a certificate stating that no such taxes are due. 6.7. Employee Benefits. Seller and Zygo shall (i) retain all responsibility and liability for providing COBRA continuation coverage, in accordance with Code Section 4980B and Sections 601 through 608 of ERISA, to Qualified Beneficiaries (within the meaning of Code Section 4980(g)(1) and Treasury Regulation 54.4980B-9) who incur a qualifying event on or prior to the Closing Date as the result of, or in connection with, the transactions contemplated herein; (ii) cause the Zygo Corp. Profit-Sharing Plan to afford each participating Transferred Employee the opportunity to receive distribution of his or her account balance in accordance with Code Section 401(k)(10) (including the in-kind distribution of any promissory notes evidencing participant loans thereunder) in the form of a direct rollover to an account maintained for such Transferred Employee under a defined contribution plan of Buyer which is qualified under Section 401(a) of the Code; and (iii) permit Transferred Employees to exercise options granted under the Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan, which are otherwise vested and exercisable as of the Closing Date, until the earlier of the (x) third anniversary of the Closing Date, or (y) the expiration of the option term. 6.8. UMC Machine. Zygo will not be permitted to actively market the UMC Machine to any customer other than UMC; provided however, that if Zygo becomes aware of a customer for the UMC Machine, Zygo may request that Buyer contact such customer. At any time, Zygo may request Buyer to sell the UMC Machine to another customer. Zygo shall pay the conversion cost associated with preparing the UMC Machine to be sold to such customer provided Zygo and Buyer agree in advance to the sales price and cost of conversion. Buyer will use commercially reasonable efforts to sell the UMC Machine if requested by Zygo. If the UMC Machine is not sold within 180 days from the Closing Date, Zygo will pay Buyer a fee of $2,500 per month until the UMC Machine is sold. If the UMC Machine is sold for less than $475,000, Page 38 Zygo will reimburse Buyer for the difference. If the UMC Machine is sold for greater than $490,000, Buyer shall pay the difference to Zygo to the extent that Zygo has paid conversion costs pursuant to this Section 6.8 to Buyer. 6.9. Enforcement of Nondisclosure and NonViolation Agreement. Zygo shall promptly initiate proceedings to enforce that certain Nondisclosure and NonViolation Agreement between Zygo and Craig Peterson dated March 10, 1997 and that certain Nondisclosure and NonViolation Agreement between Zygo and Brian Monti dated _____________ and certain NonCompetition Agreements with such individuals each dated December 12, 2001 if Zygo becomes aware of any violation of such agreements. Zygo acknowledges that the covenant provided in this Section 6.9 is integral to the transactions contemplated by this Agreement. ARTICLE VII. COVENANTS OF BUYER 7.1. Notices and Consents. The Buyer shall use commercially reasonable best efforts to obtain, at its reasonable expense, all such waivers, permits, consents, approvals or other authorizations from third parties and governmental entities or authorities, and to effect all such registrations, filings and notices with or to third parties and governmental entities or authorities, as may be necessary or desirable in connection with the transactions contemplated by this Agreement. 7.2. Certain Filings. The Buyer shall assist the Seller in making all such filings, applications and notices as may be necessary or desirable in order to obtain the authorization, approval or consent of any Governmental Authority which may be reasonably required or which the Seller may reasonably request in connection with the consummation of the transactions contemplated hereby. 7.3. Governmental Authorizations; Consents. Buyer shall use commercially reasonable efforts (with the reasonable assistance of the Seller to the extent required to obtain such approvals) to obtain promptly all Governmental Authorizations required to be obtained for the lawful consummation of the Closing. 7.4. Employment Offers. Buyers shall make employment offers to each of the Key Employees substantially in the form of Exhibit D. 7.5. Warranty Service. Buyer will provide the warranty services referred to in Section 6.5 in the ordinary course of Buyer's business and consistent with Seller's product warranty obligations. 7.6. Employee Benefits. Buyer shall take such action as necessary to provide all Transferred Employees with credit for employment service with Seller or Zygo for purposes of determining eligibility and vesting under any employee benefit plan or program sponsored or maintained by Buyer (except plans or programs which are adopted after the Closing Date and which do not give credit for past service to participants) and for determining the period of employment under any vacation, sick pay, or other paid time off plan or program of Buyer and for determining other entitlements and terms of employment affected by seniority. Any pre- Page 39 existing condition limitations, evidence of insurability provisions, waiting periods or similar limitations under Buyer's group health plans will be waived with respect to Transferred Employees (and covered dependents thereof) and, for purposes of computing deductible amounts, co-pays and other maximums under such plans, expenses and claims recognized prior to the termination of the Transition Services Agreement for similar purposes under Seller's or Zygo's group health plans shall be credited or recognized. Buyer shall be responsible for providing COBRA continuation coverage, in accordance with Code Section 4980B and Sections 601 through 608 of ERISA, to each Transferred Employee and his or her Qualified Beneficiaries (within the meaning of Code Section 4980B(g)(1) and Treasury Regulation 54.4980B-9 thereof) who incurs a qualifying event after the Closing Date. Upon the termination of the Transition Services Agreement, (i) Buyer shall act as the successor employer, as defined in the alternate procedure under Rev. Proc. 96-60, with respect to the Transferred Employees for purposes of FICA, FUTA and federal income tax withholding and reporting, and (ii) such Transferred Employee shall become eligible to participate in Buyer's group health plan. ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF BUYER The obligations of the Buyer to consummate this Agreement and the transactions contemplated hereby are subject to the condition that on or before the Closing the actions required by this Article will have been accomplished any and all of which may be waived by the Buyer. 8.1. Representations; Warrantees; Covenants. Without giving effect to any qualification of materiality (or any variation of such term) contained in any representation or warranty, the representations and warranties of the Seller and Zygo contained in Article IV hereof or contained in the Ancillary Agreements, shall be true and correct in all material respects as though made on and as of the Closing Date and the Seller and Zygo shall, on or before the Closing have performed all of their respective obligations hereunder and under the Ancillary Agreements which by the terms hereof and thereof are to be performed by them on or before the Closing. 8.2. Encumbrance Terminations. The Seller shall have delivered to the Buyer evidence satisfactory to the Buyer and its counsel that the Seller is able to deliver the Purchased Assets free and clear of all Encumbrances, except Permitted Encumbrances. 8.3. Certain Ancillary Agreements. The Seller and/or Zygo (as applicable) shall have executed the following agreements and documents and delivered them to the Buyer: (a) a Corporate Noncompetition and Proprietary Agreement substantially in the form attached hereto as Exhibit E; (b) the Escrow Agreement; (c) a sublease agreement for the property located at 1811 Pike Road Longmont, Colorado with the Buyer substantially in the form attached hereto as Exhibit F; Page 40 (d) a Bill of Sale from the Seller transferring title to the Purchased Assets to the Buyer, each substantially in the form attached hereto as Exhibit G; (e) Patent Assignment Agreement from the Seller, each substantially in the form attached hereto as Exhibit H; (f) Trademark Assignment Agreements from the Seller, each substantially in the form attached hereto as Exhibit I; (g) Transition Services Agreement substantially in the form attached hereto as Exhibit J; and (h) certificates of the President of both the Seller and Zygo to the effect that each of the conditions specified in Section 8.1 above has been satisfied. 8.4. Key Employees. The Key Employees shall have agreed to accept employment with the Buyer. 8.5. Noncompetition Agreements. Each of the Key Employees shall have executed and delivered to the Buyer a Nonsolicitation and Proprietary Information Agreement substantially in the form attached hereto as Exhibit K. 8.6. Authorization from Others. All consents and permits of others required to permit the Seller to complete the transactions contemplated by this Agreement and the Ancillary Agreements shall have been received by the Seller and presented to the Buyer in a form acceptable to the Buyer, including without limitation the consent of Etec Systems, an Applied Materials, Inc. company ("Etec") to the assignment to the Buyer of that certain Global Supply Agreement dated June 15, 2001 by and between Etec and Zygo. 8.7. Absence of Certain Litigation. There shall not be any: (a) Court Order of any nature issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided; (b) Proceeding by any federal, state, local or foreign government (or any agency thereof) pending before any court or governmental agency, or threatened to be filed or initiated, wherein such complainant seeks the restraint or prohibition of the consummation of any material transaction contemplated by this Agreement or asserts the illegality thereof; or (c) Proceeding by a private party pending before any court or governmental agency, or threatened to be filed or initiated, which in the reasonable opinion of counsel for the Buyer is likely to result in the restraint or prohibition of the consummation of any material transaction contemplated hereby or the obtaining of an amount in payment (or indemnification) of material damages from or other material relief against any of the parties or against any directors or officers of the Buyer, in connection with the consummation of any material transaction contemplated hereby. 8.8. No Bankruptcy. The Seller shall not: (a) have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking Page 41 the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or have consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or have made a general assignment for the benefit of its creditors; or (b) have an involuntary case or other proceeding commenced against it seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereinafter in effect or seeking the appointing of a trustee, receiver, liquidator, custodian or similar official of it or substantially all of its property; or (c) have an attachment placed on all or a significant portion of its assets. 8.9. Opinion of Counsel for the Seller. (a) At the Closing, the Buyer shall have received from counsel for the Seller, an opinion dated as of the Closing, substantially in the form set forth as Exhibit L hereto. (b) In rendering the foregoing opinion, such counsel for the Seller may state their opinions on specific matters of fact to the best of their knowledge and, to the extent they deem such reliance proper, may rely on: (i) certificates of public officials; (ii) certificates, in form and substance satisfactory to the Buyer and its counsel, of officers of the Seller; and (iii) an opinion or opinions of other counsel, satisfactory to the Buyer and its counsel, which opinions are in form and substance satisfactory to the Buyer and its counsel. In the event such counsel rely upon any such certificate or opinion, a counterpart of each thereof shall be delivered to the Buyer and its counsel. 8.10. No Material Adverse Effect. Except for changes which have been disclosed to and accepted in writing by the Buyer prior to the Closing, there shall have been no Material Adverse Effect upon the Seller or the Purchased Assets taken as a whole since the date of this Agreement, including, but not limited to, there being no material change in the net tangible asset value of the Seller's business. 8.11. Approval of Buyer's Counsel. All actions, proceedings, instruments and documents required to carry out this Agreement and all related legal matters contemplated by this Agreement, including, without limitation, opinions of counsel, shall have been approved by counsel for the Buyer, provided that the approval of such counsel shall not be unreasonably withheld. 8.12. Tax Status Letter. Seller shall have delivered to Buyer a tax status letter (DR96) from the Colorado Department of Revenue or such other evidence as is deemed acceptable by Buyer relating to the status of all business taxes of Seller payable to the State of Colorado, including, without limitation, sales tax payable to the Colorado Department of Revenue or other taxing authority in Colorado and an affidavit that all delinquent sales tax has been paid. Page 42 ARTICLE IX. CONDITIONS TO OBLIGATIONS OF THE SELLER The obligations of the Seller to consummate this Agreement and the transactions contemplated hereby are subject to the condition that on or before the Closing the actions required by this Article will have been accomplished (any or all of which may be waived by Seller). 9.1. Representations; Warrantees; Covenants. Without giving effect to any qualification of materiality (or any variation of such term) contained in any representation or warranty, the representations and warranties of the Buyer contained in Article V, and contained in the Ancillary Agreements shall be true and correct in all material respects as though made on and as of the Closing Date and the Buyer shall, on or before the Closing have performed all of its obligations hereunder and under the Ancillary Agreements which by the terms hereof and thereof are to be performed by it on or before the Closing. 9.2. Certain Ancillary Agreements. The Buyer shall have executed the following agreements and documents and delivered them to the Seller: (a) Assignment and Assumption of Liabilities agreements in favor of the Seller substantially in the forms attached hereto as Exhibit M; (b) the Escrow Agreement; and (c) a certificate of the Senior Vice President, Finance & Administration and Chief Financial Officer of the Buyer to the effect that each of the conditions specified in Section 9.1 above has been satisfied. 9.3. Governmental Consents and Approvals . All consents and permits of others required to permit the Buyer to complete the transaction shall have been received by the Buyer. 9.4. Absence of Certain Litigation. There shall not be any: (a) Court Order of any nature issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided; (b) Proceeding by any federal, state, local or foreign government (or any agency thereof) pending before any court or governmental agency, or threatened to be filed or initiated, wherein such complainant seeks the restraint or prohibition of the consummation of any material transaction contemplated by this Agreement or asserts the illegality thereof; or (c) Proceeding by a private party pending before any court or governmental agency, or threatened to be filed or initiated, which in the reasonable opinion of counsel for the Seller is likely to result in the restraint or prohibition of the consummation of any material transaction contemplated hereby or the obtaining of an amount in payment (or indemnification) of material damages from or other material relief against any of the parties or against any directors or officers of the Seller, in connection with the consummation of any material transaction contemplated hereby. 9.5. No Bankruptcy. The Buyer shall not: (a) have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its Page 43 debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or have consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or have made a general assignment for the benefit of its creditors; or (b) have an involuntary case or other proceeding commenced against it seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereinafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official of it or substantially all of its property; or (c) have an attachment placed on all or a significant portion of its assets. 9.6. Opinion of Buyer's Counsel. (a) At the Closing, the Seller shall have received from Brown, Rudnick, Freed & Gesmer, counsel for Buyer, an opinion dated as of the Closing, substantially in the form of Exhibit N hereto. (b) In rendering said opinion, such counsel may state their opinions on specific matters of fact to the best of their knowledge and, to the extent they deem such reliance proper, may rely on: (i) certificates of public officials; (ii) certificates, in form and substance satisfactory to the Seller and their counsel; (iii) certificates of officers of the Buyer; and (iv) an opinion or opinions, in form and substance satisfactory to the Seller and its counsel, of other counsel satisfactory to the Seller and their counsel. In the event such counsel for the Buyer relies upon any such certificate or opinion, a counterpart of each thereof shall be delivered to the Seller and their counsel. ARTICLE X. INDEMNIFICATION 10.1. Indemnification by the Seller and Zygo. (a) Subject to the limitations in paragraph (b) below, the Seller and Zygo, jointly and severally, shall defend, indemnify and hold harmless the Buyer's Indemnified Persons from and against all Losses directly or indirectly incurred by or sought to be imposed upon any of them and whether or not caused by negligence or willful act: (i) resulting from or arising out of any breach of any of the representations or warranties (other than those in Sections 4.8, 4.9(e), 4.10, 4.11, 4.12 and 4.17) made by the Seller or Zygo in or pursuant to this Agreement or any Ancillary Agreement; (ii) resulting from or arising out of any breach of any of the representations or warranties made by the Seller or Zygo pursuant to Sections 4.9(e) and 4.12; (iii) resulting from or arising out of any breach of any of the representations and warranties made by the Seller pursuant to Sections 4.10 and 4.11; Page 44 (iv) resulting from or arising out of any breach of any covenant or agreement made by the Seller or Zygo in or pursuant to this Agreement or any Ancillary Agreement; (v) in respect of any Retained Liabilities; (vi) resulting from or arising out of any breach of any of the representations and warranties made by the Seller pursuant to Section 4.8 or any liability, payment or obligation in respect of any Taxes owing by any of the Seller, by Zygo or the Buyer, as successor to the Seller's businesses, of any kind or description (including interest and penalties with respect thereto) for all periods, or portions thereof, up to and including the Closing Date; (vii) resulting from or arising out of (1) any breach of any of the representations and warranties made by the Seller pursuant to Section 4.17, or (2) any third party action, whether by a Governmental Authority or other third party for damages, including fines or penalties, or clean-up costs or other compliance costs under any Environmental Law or from the violation of any Environmental Law arising out of the acts or omissions of the Seller with respect to the operation of the Purchased Assets on or before the Closing Date; or (b) The right to indemnification under paragraph (a) is subject to the following limitations: (i) The Seller and Zygo shall have no liability under paragraph (a) unless one or more of the Buyer's Indemnified Persons gives written notice to the Seller or Zygo asserting a claim for Losses, including reasonably detailed facts and circumstances pertaining thereto, before the expiration of the period set forth below: (1) for claims under clauses (i) and (iii) of paragraph (a) above, a period of one (1) year from the Closing Date; (2) for claims under clauses (vi) and (vii) of paragraph (a) above, for so long as any claim may be made in respect of such matters under any applicable statute of limitations, as it may be extended; and (3) for claims under clauses (ii), (iv) and (v) of paragraph (a) above, without limitation as to time. Page 45 (ii) Indemnification for claims under clauses (a)(i) and (iii) above shall be payable by the Seller and Zygo only if the aggregate amount of all Losses hereunder by the Buyer's Indemnified Persons shall exceed Two Hundred Thousand Dollars ($200,000) (the "SELLER'S BASKET"), at which point the Seller and Zygo shall be responsible for all Losses, including the Seller's Basket. The Seller's and Zygo's aggregate liability for indemnification under clauses (a)(i), (iii) and (iv) above shall, whether under a breach of contract claim or otherwise, in no event exceed the Escrow Amount. The Seller's and Zygo's aggregate liability for indemnification under clauses (a)(ii), (v), (vi) and (vii) shall not be limited. (iii) For the purpose of this Section 10.1, any qualification of any representations and warranties by reference to the materiality of matters stated therein, and any limitations of any representations and warranties as being "to the knowledge of" or "known to" or words of similar effect, shall be disregarded in determining any breach thereof or any Losses. (iv) At their option, the Seller or Zygo may repurchase from the Buyer, for an amount equal to the value reflected in the Closing Balance Sheet, all or any part of the Inventory included in the Purchased Assets which is subject to any claims for Losses under clause (iii) of paragraph (a) above. Upon payment by the Seller or Zygo for any claim for Losses with respect to any Inventory under clause (iii) of paragraph (a) above, the Buyer shall concurrently therewith assign such inventory to the Seller or Zygo free and clear of any Encumbrances. (c) Except as provided in Section 11.10 (with respect to specific performance), the indemnification provided for in this Article X shall be the exclusive remedy for breaches of representations, warranties and covenants contained in this Agreement provided that no party hereto shall be deemed to have waived any right of recourse (whether a claim under this Article X or otherwise) arising from fraud of any other party hereto. 10.2. Indemnification by Buyer. (a) Subject to the limitations in paragraph (b) below, Buyer agrees to defend, indemnify and hold harmless Seller's Indemnified Persons from and against all Losses directly or indirectly incurred by or sought to be imposed upon any of them whether or not caused by negligence or willful act, (i) resulting from or arising out of any breach of any of the representations, warranties or covenants made by Buyer in or pursuant to this Agreement or any Ancillary Agreement; Page 46 (ii) in respect of any Assumed Liability. (b) The right to indemnification under paragraph (a) is subject to the following limitations: (i) Buyer shall have no liability under paragraph (a) unless one or more of the Seller's Indemnified Persons gives written notice to the Seller or Zygo asserting a claim for Losses, including reasonably detailed facts and circumstances pertaining thereto, before the expiration of the period set forth below: (1) for claims under clause (i) of paragraph (a) above, a period of one (1) year from the Closing Date; and (2) for claims under clause (ii) of paragraph (a) above, without limitation as to time. (ii) Indemnification for claims under clause (a)(i) above shall be payable by the Buyer only if the aggregate amount of all Losses hereunder by the Seller's Indemnified Persons shall exceed Two Hundred Thousand Dollars ($200,000) (the "BUYER'S BASKET"), at which point the Buyer shall be responsible for all Losses, including the Buyer's Basket. The Buyer's aggregate liability for indemnification under paragraph (a)(i) above shall, whether under breach of contract claim or otherwise, in no event exceed $1,300,000. (iii) For the purpose of this Section 10.2, any qualification of any representations and warranties by reference to the materiality of matters stated therein, and any limitations of any representations and warranties as being "to the knowledge of" or "known to" or words of similar effect, shall be disregarded in determining any breach thereof or any Losses. (c) Except as provided in Section 11.10 (with respect to specific performance), the indemnification provided for in this Article X shall be the exclusive remedy for breaches of representations, warranties and covenants contained in this Agreement provided that no party hereto shall be deemed to have waived any right of recourse (whether a claim under this Article X or otherwise) arising from fraud or intentional misconduct of any other party hereto. Page 47 10.3. Defense of Third Party Actions. (a) Promptly after receipt of notice of any Third Party Action, any person who believes he, she or it may be an Indemnified Person will give notice to the potential Indemnifying Person of such action. The omission to give such notice to the Indemnifying Person will not relieve the Indemnifying Person of any liability hereunder unless it was materially prejudiced thereby, nor will it relieve it of any liability which it may have other than under this Article. (b) Upon receipt of a notice of a Third Party Action, the Indemnifying Person shall have the right, at its option and at its own expense, to participate in and be present at the defense of such Third Party Action, but not to control the defense, negotiation or settlement thereof, which control shall remain with the Indemnified Person, unless the Indemnifying Person makes the election provided in paragraph (c) below. (c) By written notice, an Indemnifying Person may elect to assume control of the defense, negotiation and settlement thereof, with counsel reasonably satisfactory to the Indemnified Person; provided, however, that the Indemnifying Person agrees: (i) to promptly indemnify the Indemnified Person for its expenses to date; and (ii) to hold the Indemnified Person harmless from and against any and all Losses caused by or arising out of any settlement of the Third Party Action approved by the Indemnifying Person or any judgment in connection with that Third Party Action. The Indemnifying Persons shall not in the defense of the Third Party Action enter into any settlement which does not include as a term thereof the giving by the third party claimant of an unconditional release of the Indemnified Person, or consent to entry of any judgment except with the consent of the Indemnified Person. (d) Upon assumption of control of the defense of a Third Party Action under paragraph (c) above, the Indemnifying Person will not be liable to the Indemnified Person hereunder for any legal or other expenses subsequently incurred in connection with the defense of the Third Party Action. (e) If the Indemnifying Person does not elect to control the defense of a Third Party Action under paragraph (c), the Indemnifying Person (once a determination has been made that such person is an Indemnifying Person with respect to the Third Party Action) shall promptly reimburse the Indemnified Person for expenses incurred by the Indemnified Person in connection with defense of such Third Party Action, as and when the same shall be incurred by the Indemnified Person. (f) Any person who had the right hereunder but did not assume control of the defense of any Third Party Action shall have the duty to cooperate with the party which assumed such defense. 10.4. Miscellaneous. (a) Buyer's Indemnified Persons shall be entitled to indemnification under Section 10.1(a) regardless of whether the matter giving rise to the applicable liability, payment, Page 48 obligation or expense may have been previously disclosed to any such person, unless expressly disclosed on the particular Schedule. (b) If any Loss is recoverable under more than one provision hereof, the Indemnified Person shall be entitled to assert a claim for such Loss until the expiration of the longest period of time within which to assert a claim for Loss under any of the provisions which are applicable. (c) The Buyer may, at its option, recover any amount rightfully owing by the Seller or Zygo for indemnification hereunder by setoff against any amounts that may otherwise be due from the Buyer to the Seller or Zygo, or any of them, whether hereunder or otherwise; provided that the Buyer shall not be required to recover such claims in such manner and may proceed against the Indemnified Party at any time or times for recovery of indemnification claims. 10.5. Payment of Indemnification. Claims for indemnification under this Article X shall be paid or otherwise satisfied by Indemnifying Persons within thirty (30) days after notice thereof is given by the Indemnified Person (once a determination has been made that such person is an Indemnifying Person with respect to the Third Party Action). Any amount which may become due and payable to any of the Buyer's Indemnified Persons under Section 10.1(a) above shall first be paid or otherwise satisfied out of the Escrow until the same has been exhausted. Subject to the limitations of Section 10.1(b)(ii), any claims in excess of the amount of the Escrow and any amounts of set off may be recovered by whatever remedy is available at law or equity ARTICLE XI. MISCELLANEOUS 11.1. Survival of Warranties. All representations, warranties, agreements, covenants and obligations herein or in any schedule, certificate or financial statement delivered by any party to another party incident to the transactions contemplated hereby are material, shall be deemed to have been relied upon by the other party and shall survive the Closing for the applicable periods set forth in Article X and shall be further actionable subject to the limitations set forth therein, regardless of any investigation and shall not merge in the performance of any obligation by either party hereto. 11.2. Fees and Expenses. Except as otherwise expressly provided in this Agreement, the Seller and Zygo will pay their respective legal, accounting and other expenses in connection with this Agreement and the transactions contemplated herein and the Buyer will pay its legal, accounting and other expenses in connection with this Agreement and the transactions contemplated herein. 11.3. Notices. All notices, requests, demands and other communications required or permitted to be given hereunder by any party hereto shall be in writing and shall be deemed to have been duly given: (a) when received if delivered personally; (b) one business day after delivered to a prepaid domestically recognized overnight receipted courier if sent domestically; (c) three business days after delivered to a prepaid internationally recognized overnight receipted courier if sent internationally; (d) when receipt telephonically acknowledged if sent by telecopier Page 49 transmission on a business day or, if not a business day, on the next following business day; or (e) when answered back if sent by telex, if on a business day, or if not a business day, on the next following business day, to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): If to the Seller or Zygo: Zygo Corporation Laurel Brook Road Middlefield, CT 06455 Tel: (860) 347-8506 Fax: (860) 347-8372 Attn: President with a copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, NY 10103 Tel: (212) 318-3000 Fax: (212) 318-3400 Attn: Sheldon G. Nussbaum, Esquire If to the Buyer, to: Brooks Automation, Inc. 15 Elizabeth Drive Chelmsford, MA 01824 Tel: (978) 262-2400 Fax: (978) 262-2500 Attn: Ellen B. Richstone, Senior Vice President, Finance & Administration and Chief Financial Officer with a copy to: Brown, Rudnick, Freed & Gesmer One Financial Center Boston, MA 02111 Tel: (617) 856-8200 Fax: (617) 856-8201 Attn: Paul J. Hartnett, Jr., Esquire and in any case at such other address as the addressee shall have specified by written notice. All periods of notice shall be measured from the date of delivery thereof. Page 50 11.4. Publicity and Disclosures. No Party shall issue any public announcement or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement without giving prior written notice of such announcement or similar publicity and giving the other the opportunity to comment thereon, except as may be required by law or by obligations pursuant to any listing agreement with an securities exchange or Nasdaq. 11.5. Entire Agreement. This Agreement together with the Ancillary Agreements (including all exhibits or schedules appended to this Agreement and all documents delivered hereunder) constitutes the entire agreement between the parties, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof and inducements to the making of this Agreement relied upon by any party hereto, have been expressed herein or in the documents incorporated herein by reference. 11.6. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to such party or circumstances other than those to which it is so determined to be invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be enforced to the fullest extent permitted by law. If the final judgment of a court of competent jurisdiction declares that any item or provision hereof is invalid or unenforceable, the parties hereto agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specific words or phrases and to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. 11.7. Assignability. This Agreement may not be assigned otherwise than by operation of law by either party without the written consent of the other parties, provided however, that any party may assign any of its rights under this Agreement or in any agreement, document or instrument executed and delivered pursuant hereto or in connection with the Closing (without the prior written consent of the other parties): (i) to any successor to all or substantially all of its business and assets relating to the subject matter of this Agreement, to the extent that such entity agrees to assume all of the such party's obligations hereunder; or (ii) to one or more Affiliates of such party, to the extent that any such entity agrees to assume all of such party's obligations hereunder. Furthermore, any or all rights of a party to receive performance (but not the obligations of such party hereunder) and rights to assert claims against the other parties in respect of breaches of representations, warranties or covenants of the other parties hereunder, may be assigned by such party to any Affiliate of such party, but any assignee of such rights shall take such rights subject to any defenses, counterclaims and rights of setoff to which the other parties might be entitled under this Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement. Page 51 11.8. Amendment. This Agreement may be amended only by a written agreement executed by the Buyer and the Seller. 11.9. Governing Law; Venue. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (other than the choice of law principles thereof), except that any representations and warranties with respect to real and tangible property shall be governed by and construed in accordance with the laws of the jurisdiction where such property is situated if other than in The Commonwealth of Massachusetts. (b) If the Buyer and the Seller and Zygo are unable to reach agreement with respect to any disputed matters within forty-five (45) days of the delivery of the notice of such dispute (including any written notice of objection to a claim for indemnity), the matter shall be settled by binding arbitration in Boston, Massachusetts, as set forth below. All claims shall be settled in accordance with the Commercial Arbitration Rules then in effect of the American Arbitration Association (the "AAA RULES"). The Seller or Zygo and the Buyer shall each designate one arbitrator within fifteen (15) days after the termination of such forty-five (45) day period. The Seller or Zygo and the Buyer shall cause such designated arbitrators mutually to agree upon and designate a third arbitrator; provided, however, that (I) failing such agreement within 70 days of delivery of the notice of such dispute, the third arbitrator shall be appointed in accordance with the AAA Rules and (ii) if either the Seller (or Zygo) or the Buyer fails to timely designate an arbitrator, the dispute shall be resolved by the one arbitrator timely designated. All of the fees and expenses of the arbitrators shall be paid 50% by the Buyer and 50% by Seller or Zygo. The Seller or Zygo and the Buyer shall cause the arbitrators to decide the matter to be arbitrated pursuant hereto within 30 days after the appointment of the last arbitrator. The final decision of the majority of the arbitrators shall be furnished to Seller or Zygo and the Buyer in writing and shall constitute the conclusive determination of the issue in question binding upon the Seller, Zygo and the Buyer, and shall no be contested by any of them. Such decision may be used in a court of law only for the purpose of seeking enforcement of the arbitrators' decision. 11.10. Remedies. The parties hereto acknowledge that the remedy at law for any breach of the obligations undertaken by the parties hereto is and will be insufficient and inadequate and that the parties hereto shall be entitled to equitable relief, in addition to remedies at law. In the event of any action to enforce the provisions of this Agreement, the parties shall waive the defense that there is an adequate remedy at law. The Seller hereby acknowledges that the Purchased Assets are unique and cannot be obtained on the open market. Without limiting any remedies any party may otherwise have hereunder or under applicable law, in the event any other party refuses to perform its obligations under this Agreement, the first party shall have, in addition to any other rights at law or equity, the right to specific performance. 11.11. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Page 52 11.12. Effect of Table of Contents and Headings. Any table of contents, title of an article or section heading herein contained is for convenience of reference only and shall not affect the meaning of construction of any of the provisions hereof. 11.13. Interpretation. The parties hereto acknowledge and agree that: (a) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. Page 53 IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as an instrument under seal in multiple counterparts as of the date set forth above by their duly authorized representatives. BROOKS AUTOMATION, INC. By: ------------------------------------------------ Name: Title: NEXSTAR CORPORATION By: ------------------------------------------------ ZYGO CORPORATION By: ------------------------------------------------ Page 54 ASSET PURCHASE AGREEMENT List of Schedules and Exhibits
EXHIBIT DOCUMENT Exhibit A Base Balance Sheet Exhibit B List of Key Employees Exhibit C Form of Escrow Agreement Exhibit D Form of Employment Offers Exhibit E Form of Corporate NonCompetition and Proprietary Information Agreement Exhibit F Form of Sublease Exhibit G Form of Bill of Sale Exhibit H Form of Patent Assignment Exhibit I Form of Trademark Assignment Agreement Exhibit J Form of Transition Services Agreement Exhibit K Nonsolicitation and Proprietary Information Agreement Exhibit L Form of Opinion of Counsel for Seller Exhibit M Assignment and Assumption of Liabilities Agreement Exhibit N Form of Opinion of Counsel for Buyer
Page 55 EXHIBIT __ KEY EMPLOYEES 1) Donald Davis 2) John Kropewnicki 3) Shavar Pirouznia 4) Denna Suchy 5) Tac Doran 6) Xavier Girin 7) Jerry Crisafulli 8) Jeffrey Halmagyi 9) Robert Dean 10) Rich Amburn 11) Barry Smith Page 56 EX-12.01 10 b40853baex12-01.txt CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.01 BROOKS AUTOMATION, INC. CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS AND ACCRETION (DOLLARS IN THOUSANDS EXCEPT RATIOS)
Year ended September 30, -------------------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- FIXED CHARGES Interest expense $ 4,063 $ 1,345 $ 1,553 $ 2,347 $ 1,730 Portion of rent expense representative of interest 1,600 1,933 1,633 1,781 1,332 -------- -------- -------- -------- -------- 5,663 3,278 3,186 4,128 3,062 Preferred dividend and accretion requirement 145 194 1,248 2,484 1,815 -------- -------- -------- -------- -------- Combined fixed charges and preferred dividends and accretion $ 5,808 $ 3,472 $ 4,434 $ 6,612 $ 4,877 ======== ======== ======== ======== ======== EARNINGS Income (loss) before income taxes and minority interests $(36,523) $ 28,444 $(10,448) $(27,917) $ (2,857) Fixed charges per above 5,808 3,472 4,434 6,612 4,877 -------- -------- -------- -------- -------- $(30,715) $ 31,916 $ (6,014) $(21,305) $ 2,020 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred dividends and accretion --(A) 9.2 --(B) --(C) --(D) ======== ======== ======== ======== ======== Coverage deficiency $(36,523) $ -- $(10,448) $(27,917) $ (2,857) ======== ======== ======== ======== ========
(A) Earnings were insufficient to cover fixed charges by $36,523,000 in fiscal 2001. (B) Earnings were insufficient to cover fixed charges by $10,448,000 in fiscal 1999. (C) Earnings were insufficient to cover fixed charges by $27,917,000 in fiscal 1998. (D) Earnings were insufficient to cover fixed charges by $2,857,000 in fiscal 1997. EX-21.01 11 b40853baex21-01.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21.01 BROOKS AUTOMATION, INC. Subsidiaries of the Registrant
Name Jurisdiction - ---- ------------ AutoSimulations Asia Pacific Pte Ltd. Singapore AutoSimulations Ltd. United Kingdom Auto-Soft Ltd. Scotland Brooks Automation AG Switzerland Brooks Automation Asia Ltd. Korea Brooks Automation GmbH Germany Brooks Automation Holding BV B.A. Belgium Brooks Automation Holding GmbH Germany Brooks Automation International, Inc. Barbados Brooks Automation K.K. Japan Brooks Automation Korea, Ltd. Korea Brooks Automation Ltd. United Kingdom Brooks Automation Luxembourg S.A.R.L. Luxembourg Brooks Automation Massachusetts Securities Corporation Massachusetts Brooks Automation NV Belgium Brooks Automation Offshore International Caymans Brooks Automation, Pte Ltd. Singapore Brooks Automation SARL France Brooks Automation SDN. BHD. Malaysia Brooks Automation Software Corporation Canada Brooks Automation Taiwan Company Ltd. Taiwan Brooks Hanyon Inc. Korea Brooks Automation B.V. The Netherlands FASTech International Ltd. Ireland Sim Core SA France Sim Con Logistics Decision Support GmbH Germany
EX-23.01 12 b40853baex23-01.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-73682, 333-67432, 333-61928, 333-40848, 333-40842, 333-66457, 333-66455 and 333-66429) and Form S-3 (Nos. 333-70122, 333-68060, 333-68062, 333-56642 and 333-42620) of Brooks Automation Inc. of our report dated November 14, 2001, except for the first paragraph of Note 15, as to which the date is December 13, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts December 13, 2001 EX-23.02 13 b40853baex23-02.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.02 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-73682, 333-67432, 333-61928, 333-40848, 333-40842, 333-66457, 333-66455, 333-66429, and Form S-3 Nos. 333-70122, 333-68060, 333-68062, 333-56642, 333-42620) of Brooks Automation, Inc. of our report dated March 3, 2000, except for Note 4 as to which the date is March 31, 2000, with respect to the financial statements of Irvine Optical Company, LLC for the years ended December 31, 1999 and 1998 included in the Annual Report (Form 10-K) of Brooks Automation, Inc. for the year ended September 30, 2001. /s/ Ernst & Young LLP Woodland Hills, California December 10, 2001 -----END PRIVACY-ENHANCED MESSAGE-----