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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-26776
CLARIFY INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0259235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2125 O'Nel Drive
San Jose, California 95131
(Address of principal executive offices)
-------------------
(408) 573-3000
(Registrant's telephone number, including area code)
-------------------
http://www.clarify.com
(Registrant's home page on the Internet)
-------------------
Indicate by check x whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
As of August 1, 1997 there were 21,070,934 shares of the Registrant's
$0.0001 par value Common Stock outstanding.
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<PAGE>
CLARIFY INC.
FORM 10-Q
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996.................................................. 2
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 1997 and 1996.................................. 3
Condensed Consolidated Statements of Cash Flows
For the three and six months ended June 30, 1997 and 1996.................................. 4
Notes to Condensed Consolidated Financial Statements....................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........................................ 16
Item 6. Exhibits and Reports on Form 8-K........................................................... 17
SIGNATURE ........................................................................................... 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
CLARIFY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
June 30, December 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 29,671 $ 34,477
Short-term investments ............................. 5,066 1,486
Accounts receivable, net ........................... 19,234 17,977
Prepaid expenses and other current assets .......... 1,215 1,601
Deferred income tax assets ......................... 3,784 3,784
-------- --------
Total current assets ............................ 58,970 59,325
Property and equipment, net ............................ 8,732 8,470
Long-term investments .................................. 3,074 1,989
Other assets ........................................... 1,139 900
-------- --------
Total assets ................................. $ 71,915 $ 70,684
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 2,026 $ 3,920
Accrued payroll and related accruals ............... 3,790 4,771
Other accrued liabilities .......................... 4,128 2,284
Unearned revenue ................................... 10,256 12,764
-------- --------
Total current liabilities ....................... 20,200 23,739
-------- --------
Stockholders' equity:
Common stock ....................................... 2 2
Additional paid-in-capital ......................... 47,349 45,556
Cumulative translation adjustment .................. (84) (66)
Deferred compensation .............................. (88) (112)
Retained earnings .................................. 4,536 1,565
-------- --------
Total stockholders' equity ...................... 51,715 46,945
-------- --------
Total liabilities and stockholders' equity ... $ 71,915 $ 70,684
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE>
<TABLE>
CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees .................................... $ 12,446 $ 7,708 $ 25,454 $ 13,524
Services ........................................ 6,983 3,429 13,335 6,567
-------- -------- -------- --------
Total revenues ............................... 19,429 11,137 38,789 20,091
-------- -------- -------- --------
Cost of revenues:
License fees .................................... 491 306 1,011 489
Services ........................................ 4,154 2,142 8,131 4,129
-------- -------- -------- --------
Total cost of revenues ....................... 4,645 2,448 9,142 4,618
-------- -------- -------- --------
Gross margin ................................. 14,784 8,689 29,647 15,473
-------- -------- -------- --------
Operating expenses:
Product development and engineering ............. 3,780 2,151 7,373 4,029
Sales and marketing ............................. 8,149 4,233 15,166 7,680
General and administrative ...................... 1,568 1,004 3,083 1,872
Merger costs ..................................... -- 1,061 -- 1,061
-------- -------- -------- --------
Total operating expenses ..................... 13,497 8,449 25,622 14,642
-------- -------- -------- --------
Operating income ............................. 1,287 240 4,025 831
Interest income, net ............................... 330 337 692 721
-------- -------- -------- --------
Income before provision
for income taxes ...................... 1,617 577 4,717 1,552
Provision for (benefit from) income taxes ......... 599 (685) 1,746 (578)
-------- -------- -------- --------
Net income ............................. $ 1,018 $ 1,262 $ 2,971 $ 2,130
======== ======== ======== ========
Net income per share .............................. $ 0.05 $ 0.06 $ 0.14 $ 0.10
======== ======== ======== ========
Shares used in per share computations ............. 21,744 21,581 21,939 21,192
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income .......................................... $ 2,971 $ 2,130
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ...................... 1,770 673
Deferred income taxes .............................. -- (800)
Noncash charges, net ............................... 4 169
Changes in assets and liabilities:
Accounts receivable .............................. (1,323) (312)
Prepaid expenses and other current assets ........ 464 (368)
Accounts payable ................................. (1,871) 1,862
Accrued payroll and related accruals ............. (968) 337
Other accrued liabilities ........................ 1,800 1,489
Unearned revenue ................................. (2,504) (1,931)
-------- --------
Net cash provided by operating activities .............. 343 3,249
-------- --------
Cash flows from investing activities:
Purchase of property and equipment ................. (2,062) (2,017)
Proceeds from disposal of property and equipment ... 39 --
Purchase of investments ............................ (12,136) --
Proceeds from sale and maturity of investments ..... 7,493 --
Increase in other assets ........................... (269) (225)
-------- --------
Net cash used in investing activities .................. (6,935) (2,242)
-------- --------
Cash flows from financing activities:
Payments of capital lease obligations .............. -- (54)
Proceeds from issuance of common stock ............. 1,793 715
Borrowings under notes payable ..................... -- 135
-------- --------
Net cash provided by financing activities .............. 1,793 796
-------- --------
Net increase (decrease) in cash and cash equivalents ... (4,799) 1,803
Effect of foreign exchange rate changes on cash ........ (7) --
Cash and cash equivalents, beginning of period ......... 34,477 31,813
-------- --------
Cash and cash equivalents, end of period ............... $ 29,671 $ 33,616
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............ $ 1 $ 9
======== ========
Cash paid during the period for income taxes ........ $ 66 $ 189
======== ========
Supplemental schedule of noncash investing and
financing activities:
Forgiveness of notes payable to stockholders ........ $ -- $ 1,047
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
CLARIFY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring adjustments (which
in the opinion of management are necessary to fairly state the consolidated
financial position), results of operations, and cash flows of Clarify Inc. and
its subsidiaries ("Clarify" or the "Company") for the periods presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements in the Company's 1996 annual report on Form
10-K as filed with the Securities and Exchange Commission on March 31, 1997. The
consolidated results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for any future
interim periods or for the full fiscal year. The December 31, 1996 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Note 2. Computation of Net Income Per Share
Net income per share is computed on the basis of the weighted average number of
shares outstanding plus the common stock equivalents, consisting of outstanding
dilutive stock options (using the treasury stock method). Fully diluted per
share amounts are not presented, as the effect is not material. In September
1996, the Company announced a two-for-one stock split in the form of a stock
dividend. All shares, common stock equivalents, and per-share amounts applicable
to prior periods have been restated to reflect the stock split.
Note 3. Business Combination
In April 1996, the Company acquired Metropolis Software, Inc. (Metropolis), a
sales force automation software provider. The Company issued approximately
663,000 shares of its common stock in exchange for substantially all of the
shares of Metropolis. The Company also assumed stock options that converted into
options to purchase approximately 77,000 shares of the Company's common stock.
The business combination was accounted for as a pooling of interests and the
consolidated financial statements have been restated as if Metropolis had been
combined for all periods presented.
Note 4. Stock Option Repricing Program
On May 9, 1997 the Compensation Committee of the Board of Directors authorized
employees the right to convert certain outstanding stock options for option
grants with an exercise price of $13.50 per share (the fair market value on May
9, 1997), provided that such employees made the election to convert by that
date. The converted option grants vest on a date that is seven months after the
date such installment would have vested had the option not been amended by the
employee exercising this conversion right. Approximately 1,008,000 stock options
were repriced pursuant to this program.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation, statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward looking statements included in this report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statements. The Company's actual
results could differ materially from those anticipated in these forward looking
statements as a result of certain factors, including, but not limited to, those
set forth herein under the sections entitled "Overview," "Risk Factors That May
Affect Future Results," and those found in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission on March 31, 1997.
Overview
Clarify Inc. ("Clarify" or the "Company") was founded in August 1990 to
develop customer-centric front office solutions, including customer service,
field service and logistics, quality assurance, help desk and sales and
marketing applications. The Company shipped its first product--ClearSupport(R)
Version 1, the Company's cornerstone product for the customer service
organization--in September 1992. The Company's other product offerings include
ClearLogistics(R), a field service and logistics management system that first
shipped in April 1996; ClearQuality(R), which first shipped in May 1993 and is
used by quality assurance and product development organizations to track defects
and enhancement requests; ClearHelpdesk(R), an employee support center that was
released for commercial use in December 1995; and ClearSales(R), a sales
automation solution that was first released for commercial use in January 1996.
The Company introduced its latest product offerings, ClearTelebusiness(R), a
turnkey solution for developing and managing effective sales/marketing
campaigns, and ClearContracts(R), an integrated contracts management solution,
in April and June 1997, respectively. In conjunction with its software products,
the Company also offers consulting, training and technical support services.
Clarify operates in a highly competitive environment that involves a number
of risks, some of which are beyond the Company's control. Some of these risks
include continuing acceptance of Clarify's products in the marketplace, the
Company's ability to grow from the sales of these products, general competitive
pressures in the marketplace and the continued overall growth in the front
office software industry. In addition, the management of any future growth will
require the Company to continue to improve both its financial and management
controls and its reporting systems and procedures on a timely basis, as well as
to effectively expand, train and manage its workforce.
The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future. To achieve its quarterly revenue
objectives, the Company is dependent upon obtaining product orders in any given
quarter for shipment and installation in that quarter. Furthermore, the Company
has often recognized a substantial portion of its revenues in the last month of
a quarter, with a concentration of these revenues in the last half of that
month. As a result, product revenues in any quarter are substantially dependent
on orders booked and installed in that quarter. The Company believes the
purchase of its products generally involves a significant commitment of capital
because customers tend to implement the products on a large scale and must
establish certain minimum hardware capabilities. As a result, in the event of a
downturn in any existing or potential customer's business or the economy in
general, purchases of the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Due to the foregoing factors, quarterly revenue
and operating results are not predictable with any significant degree of
accuracy. The Company's expense levels are based, in significant part, on the
Company's expectations as to future revenues and are therefore relatively fixed
in the short term. If revenue levels are below expectations, the Company's
business, operating results and financial condition are likely to be adversely
affected. Net income may also be disproportionately adversely affected by a
reduction in revenues because a proportionately smaller amount of the Company's
expenses varies with its revenues. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. It is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.
6
<PAGE>
Results of Operations
<TABLE>
The following table sets forth, as a percentage of total revenues, certain
condensed consolidated statement of operations data for the periods indicated:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1997 1996 1997 1996
-------- --------- --------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees .................................... 64.1% 69.2% 65.6% 67.3%
Services ........................................ 35.9 30.8 34.4 32.7
----- ----- ----- -----
Total revenues ............................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
License fees .................................... 2.5 2.8 2.6 2.4
Services ........................................ 21.4 19.2 21.0 20.6
----- ----- ----- -----
Total cost of revenues ....................... 23.9 22.0 23.6 23.0
----- ----- ----- -----
Gross margin ................................. 76.1 78.0 76.4 77.0
----- ----- ----- -----
Operating expenses:
Product development and engineering ............. 19.5 19.3 19.0 20.1
Sales and marketing ............................. 41.9 38.0 39.1 38.2
General and administrative ...................... 8.1 9.0 7.9 9.3
Merger costs .................................... -- 9.5 -- 5.3
----- ----- ----- -----
Total operating expenses ..................... 69.5 75.8 66.0 72.9
----- ----- ----- -----
Operating income ............................. 6.6 2.2 10.4 4.1
Interest income, net .............................. 1.7 3.0 1.8 3.6
----- ----- ----- -----
Income before provision
for income taxes ...................... 8.3 5.2 12.2 7.7
Provision for (benefit from) income taxes ......... 3.1 (6.1) 4.5 (2.9)
----- ----- ----- -----
Net income ............................. 5.2% 11.3% 7.7% 10.6%
===== ===== ===== =====
</TABLE>
Revenues
The Company's revenues are derived primarily from license fees, fees from
sublicensing third-party software products and charges for services, including
maintenance, consulting and training. For all periods presented, the Company has
recognized revenue in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition." License fee revenues consist of revenues from
initial licenses for the Company's products, sales of licenses to existing
customers for additional users of the Company's products, product documentation
and fees from sublicensing third-party software products. The Company generally
recognizes initial license fee revenues upon delivery and installation of
software products if there are no remaining significant post-installation
obligations and if collection is probable. If significant post-installation
obligations exist or if a product is subject to customer acceptance, revenues
are deferred until no significant obligations remain or until acceptance has
occurred. Sales of additional licenses to the Company's existing customers are
generally recognized upon shipment provided no significant post-shipment
obligations exist. Service revenues consist primarily of maintenance, consulting
and training revenues. Maintenance revenues are recognized ratably over the term
of the support period, which is typically twelve months. Consulting and training
revenues generally are recognized when the services are performed. Consulting
services consist primarily of implementation services related to the
installation of the Company's software and do not include significant
customization to or development of the underlying software code.
Total revenues increased from $11.1 million in the second quarter of 1996
to $19.4 million in the second quarter of 1997, representing an increase of 74%,
while total revenues increased from $20.1 million for the first six months of
1996 to $38.8 million for the first six months of 1997, representing an increase
of 93%. The increases are a result of
7
<PAGE>
growth in both license fee and service revenues. The Company does not believe
that the percentage increases in revenues achieved in prior periods should be
anticipated in future periods.
License Fees. License fee revenues increased from $7.7 million in the
second quarter of 1996 to $12.4 million in the second quarter of 1997,
representing an increase of 61%, while license fee revenues increased from $13.5
million for the first six months of 1996 to $25.5 million for the first six
months of 1997, representing an increase of 88%. The increases are primarily due
to increased market acceptance of the Company's existing products, continued
enhancement and increased breadth of the Company's product offerings, the
expansion of the Company's direct sales force and marketing organization and
sales of the Company's products to new industry segments.
Services. Revenues from services increased from $3.4 million in the second
quarter of 1996 to $7.0 million in the second quarter of 1997, representing an
increase of 104%, while service revenues increased from $6.6 million for the
first six months of 1996 to $13.3 million for the first six months of 1997,
representing an increase of 103%. The increases in dollar amount were due
primarily to an increase in maintenance and maintenance renewals, consulting and
training services associated with increased sales of the Company's applications.
The Company expects revenues from maintenance to increase in future periods as
the customer installed base increases, though the percentage increases in
service revenues achieved in prior periods should not be anticipated in future
periods.
Costs of Revenues
Cost of License Fees. Cost of license fees increased from $0.3 million in
the second quarter of 1996 to $0.5 million in the second quarter of 1997,
representing an increase of 60%, while cost of license fees increased from $0.5
million for the first six months of 1996 to $1.0 million for the first six
months of 1997, representing an increase of 107%. Cost of license fees
represents 4% of license fee revenues for both the second quarter of 1996 and
1997 as well as the first six months of 1996 and 1997. Cost of license fees
consists primarily of the costs of sublicensing third-party software products,
product media, product duplication, product documentation and shipping. Costs
related to research, design and development of products are charged to product
development and engineering expenses as incurred. Accordingly, cost of license
fees includes no amortization of capitalized software development costs. Cost of
license fees as a percentage of license fee revenues may fluctuate from period
to period due to increased or decreased sales of royalty bearing software
products. Although cost of license fees as a percentage of license fee revenues
has been relatively consistent, the Company expects the cost of license fees as
a percentage of license fee revenue to fluctuate in future periods as a result
of increases and decreases in sales of royalty bearing products and as the
Company enters into additional agreements to sublicense third-party software.
Cost of Services. Cost of services consists primarily of costs incurred in
providing telephone support, consulting services, shipment of product upgrades
and training to customers. Cost of services increased from $2.1 million for the
second quarter of 1996 to $4.2 million for the second quarter of 1997,
representing an increase of 94%, while cost of services increased from $4.1
million for the first six months of 1996 to $8.1 million for the first six
months of 1997, representing an increase of 97%. The increases are due primarily
to the increase in the number of customer support and training personnel and
related overhead costs necessary to support a larger installed customer base.
Cost of services represents 62% and 59% of service revenues for the second
quarter of 1996 and the second quarter of 1997, respectively, and 63% and 61%
for the first six months of 1996 and the first six months of 1997, respectively.
The Company expects to make continued investments in its service organization in
order to support the Company's customer installed base and anticipates that cost
of services will increase in absolute dollars in future periods.
Operating Expenses
Product Development and Engineering. Product development and engineering
expenses increased from $2.2 million in the second quarter of 1996 to $3.8
million in the second quarter of 1997, representing 19% of total revenues for
both quarters. Product development and engineering expenses increased from $4.0
million for the first six months of 1996 to $7.4 million for the first six
months of 1997, representing 20% and 19% of total revenues for the two periods,
respectively. Product development and engineering expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities and consist primarily of employee
salaries, benefits, consulting expenses and the cost of software development
tools. Costs related to research, design and development of products are charged
to product development and engineering expenses as incurred. The increase in
absolute dollars was primarily attributable to an increase in personnel and
related overhead costs. The decrease in product development and engineering
expenses for the first six months of 1997 as a percentage
8
<PAGE>
of total revenues was primarily due to the growth in revenues. The Company
currently anticipates that product development and engineering expenses will
increase in absolute dollars as the Company continues to commit substantial
resources to product development and engineering in future periods, and these
expenses are expected to increase at the same or at a slightly greater rate than
the revenue growth rate.
Sales and Marketing. Sales and marketing expenses increased from $4.2
million in the second quarter of 1996 to $8.1 million in the second quarter of
1997, representing 38% and 42% of total revenues, respectively. Sales and
marketing expenses increased from $7.7 million for the first six months of 1996
to $15.2 million for the first six months of 1997, representing 38% and 39% of
total revenues, respectively. Sales and marketing expenses consist primarily of
employee salaries, sales commissions, travel and promotional expenses. The
increase in dollar amount was primarily due to the expansion of the Company's
worldwide sales and marketing organization, higher sales commissions associated
with increased revenue and increased marketing activities. The increase in sales
and marketing expenses as a percentage of total revenues for the second quarter
of 1997 compared to the second quarter of 1996 reflects the significant
investments that the Company made during the second quarter of 1997 to expand
both its direct sales force and other distribution channels. The Company intends
to continue to invest substantial resources in expanding its direct sales force,
both domestic and international, expanding its other distribution channels, and
conducting marketing programs to support existing and new product offerings.
Accordingly, sales and marketing expenses are expected to increase in absolute
dollars in future periods and are expected to increase at the same or at a
slightly greater rate than the revenue growth rate.
General and Administrative. General and administrative expenses increased
from $1.0 million in the second quarter of 1996 to $1.6 million in the second
quarter of 1997, representing 9% and 8% of total revenues, respectively. General
and administrative expenses increased from $1.9 million for the first six months
of 1996 to $3.1 million for the first six months of 1997, representing 9% and 8%
of total revenues, respectively. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. The increase in dollar amount was due primarily to increases
in personnel and related overhead costs. The decrease in general and
administrative expenses as a percentage of total revenues was primarily due to
the growth in revenues. The Company currently expects general and administrative
expenses to increase in absolute dollars in the future as the Company expands
its infrastructure.
Merger Costs. During the second quarter of 1996, the Company incurred $1.1
million of one-time merger related expenses in connection with the acquisition
of Metropolis Software, Inc.
Interest Income, net. Net interest income decreased from $337,000 in the
second quarter of 1996 to $330,000 in the second quarter of 1997 and from
$721,000 for the first six months of 1996 to $692,000 for the first six months
of 1997. The decrease is primarily due to lower excess cash balances in 1997.
Provision for (Benefit from) Income Taxes. The Company's provision for
(benefit from) income taxes increased from a benefit of $685,000 in the second
quarter of 1996 to an expense of $599,000 in the second quarter of 1997, and
from a benefit of $578,000 for the first six months of 1996 to an expense of
$1.7 million for the first six months of 1997. The benefit from income taxes in
the first six months of 1996 was a result of the recognition of deferred income
tax assets in accordance with SFAS No. 109, "Accounting for Income Taxes," of
$800,000, partially offset by the Company's first and second quarter income tax
provisions calculated at effective tax rates of 11% and 20%, respectively. The
Company's effective tax rate increased to 37% in 1997 due to federal and state
operating loss carryforwards having been recognized in fiscal 1996.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share," (SFAS 128) which specifies the
computation, presentation and disclosure requirements for earnings per share.
SFAS 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings Per
Share," and will become effective for the Company's 1997 fiscal year. SFAS 128
requires restatement of all prior-period earnings per share data presented after
the effective date. SFAS 128 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," (SFAS 130) which establishes requirements for disclosure of
comprehensive income and becomes effective for the Company for the year
9
<PAGE>
ending December 31, 1998. Comprehensive income includes such items as foreign
currency translation adjustments that are currently being presented by the
Company as a component of stockholders' equity. The Company does not expect this
pronouncement to materially impact the Company's results of operations.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," (SFAS 131). SFAS 131
establishes standards for disclosure about operating segments in annual
financial statements and selected information in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131 becomes
effective for the Company for the year ending December 31, 1998, and requires
that comparative information from earlier years be restated to conform to the
requirements of this standard. The Company does not expect this pronouncement to
materially change the Company's current reporting and disclosures.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $0.3 million in the
first six months of 1997 compared to $3.2 million in the first six months of
1996. The decrease in cash provided by operating activities in the first six
months of 1997 is attributed principally to a decrease in unearned revenue,
accounts payable, and accrued payroll and related accruals and an increase in
accounts receivable. These changes were partially offset by a decrease in
prepaid expenses and other current assets and an increase in other accrued
liabilities. The increase in accounts receivable resulted primarily from a
higher percentage of orders being received in the last month of the second
quarter of 1997 as compared to the second quarter of 1996 and due to the overall
growth in revenue. The decrease in unearned revenue was due to the Company
installing and fulfilling certain post-installation obligations for orders
deferred at December 31, 1996, as well as a large portion of product orders
received in the first six months of 1997 being shipped and installed within that
period.
Investing activities used net cash of $6.9 million in the first six months
of 1997 compared to $2.2 million in the first six months of 1996. Included in
these totals is net cash used and provided by the purchase and sale of
investments and the purchase and disposal of property and equipment. Purchases
of short and long-term investments used cash of $10.0 million and $2.1 million,
respectively, and the sale of short and long-term investments generated cash of
$6.5 million and $1.0 million, respectively, during the first six months of
1997. There were no purchases or sales of investments during the first six
months of 1996. The Company used $2.1 million and $2.0 million of cash during
the first six months of 1997 and 1996, respectively, to purchase property and
equipment. The Company expects that the rate of purchases of property and
equipment will remain constant or increase as the Company's employee base grows.
Financing activities generated cash of $1.8 million and $0.8 million in the
first six months of 1997 and 1996, respectively. Cash provided from financing
activities in the first six months of 1997 consisted of proceeds from the
issuance of common stock pursuant to the Employee Stock Purchase Plan and the
exercise of options granted under the Company's Stock Option Plans. Similarly,
cash provided from financing activities during the first six months of 1996
consisted of $0.7 million of proceeds from the issuance of common stock under
the aforementioned plans in addition to $0.1 million of proceeds from borrowings
under a note.
The Company believes that cash generated from operations and its existing
cash and cash equivalents and short-term investment balances will satisfy the
Company's projected working capital and other cash requirements for at least the
next twelve months. Although operating activities may provide cash in certain
periods, to the extent the Company grows in the future, its operating and
investing activities may use cash. In the event that cash generated from
operating activities may not be sufficient to meet future cash requirements,
there can be no assurance that additional financing will be available to the
Company on commercially reasonable terms, or at all.
Risk Factors That May Affect Future Results
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. Other risks are presented elsewhere
in this report.
Fluctuations in Quarterly Results; Seasonality. The Company's quarterly
operating results have varied significantly in the past and may vary
significantly in the future, depending on factors such as the size and timing of
significant
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<PAGE>
orders, the level of price and product competition, demand for the Company's
products, changes in pricing policies by the Company or its competitors and the
number, timing and significance of product enhancements and new product
announcements by the Company and its competitors. In addition, the Company's
quarterly operating results are dependent on factors such as the ability of the
Company to develop, introduce and market new and enhanced versions of the
Company's products on a timely basis, the size, timing and structure of
significant licenses, changes in the Company's sales incentive strategy, the
timing of revenue recognition, budgeting cycles of its customers, customer order
deferrals in anticipation of enhancements or new products, the impact of
acquisitions of competitors, the cancellation of licenses or maintenance
agreements, product life cycles, software bugs and other product quality
problems, personnel changes, changes in Company strategy, investments to develop
sales distribution channels, seasonal trends, changes in the level of operating
expenses and general domestic and international economic and political
conditions, among others. In particular, the timing of revenue recognition can
be affected by many factors, including the timing of customer installation of
the Company's products. In the past, the Company has experienced delays in
recognizing revenue with respect to particular orders. There can be no assurance
that the Company will not experience delays in recognizing revenue in the
future, particularly if the Company receives orders for large, complex
installations. Product revenues are also difficult to forecast because the
market for front office software products is rapidly evolving, and the Company's
sales cycle, from initial trial to purchase and the provision of support
services, varies substantially from customer to customer. See "Risk Factors That
May Affect Future Results--Lengthy Sales and Implementation Cycles."
To achieve its quarterly revenue objectives, the Company is dependent upon
obtaining product orders in any given quarter for shipment and installation in
that quarter. Furthermore, the Company has often recognized a substantial
portion of its product revenues in the last month of a quarter, with a
concentration of these revenues in the last half of that month. As a result,
product revenues in any quarter are substantially dependent on orders booked and
installed in that quarter. Further, the Company believes the purchase of its
products generally involves a significant commitment of capital because
customers have tended to implement the products on a large scale and must
establish certain minimum hardware capabilities. As a result, in the event of
any downturn in any existing or potential customer's business or the economy in
general, purchases of the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Due to the foregoing factors, quarterly revenue
and operating results are not predictable with any significant degree of
accuracy. The Company's expense levels are based, in significant part, on the
Company's expectations as to future revenues and are therefore relatively fixed
in the short term. If revenue levels are below expectations, the Company's
business, operating results and financial condition are likely to be adversely
affected. Net income may be disproportionately adversely affected by a reduction
in revenues because a proportionately smaller amount of the Company's expenses
varies with its revenues. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. Due to all the
foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's common stock would likely
be materially adversely affected.
The Company's business has experienced and is expected to continue to
experience significant seasonality, in part due to customer buying patterns. In
recent years, the Company has generally had stronger demand for its products
during the quarters ending in June and December and weaker demand in the quarter
ending in March. To the extent international operations constitute a higher
percentage of the Company's total revenues, the Company anticipates that it may
also experience relatively weaker demand in the quarter ending in September.
Intense Competition. The front office solutions market, including the
market for customer service, field service and logistics, help desk, quality
assurance and sales and marketing applications, is intensely competitive, highly
fragmented and subject to rapid change. Competitors vary in size and in the
scope and breadth of the products and services offered. The Company encounters
competition from a number of sources, including: (i) other software companies,
(ii) third-party professional services organizations that develop custom
software and (iii) management information systems departments of potential
customers that develop custom internal software. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies as the
front office solutions market continues to develop and expand. Increased
competition could result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, operating results and financial condition. Some of the Company's
current competitors, and many of the Company's potential competitors, have
significantly greater financial, technical,
11
<PAGE>
product development, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than the Company. In addition,
many competitors and potential competitors have significant established
distribution networks and large customer installed bases. The Company also
expects that competition will increase as a result of software industry
consolidations. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In particular, companies with greater technical,
marketing and other resources than the Company could compete directly with the
Company either as a result of acquisition or by direct entry into the market for
the Company's products. There can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, operating results and financial condition.
Lengthy Sales and Implementation Cycles. The Company's products are
typically intended for use in applications that may be critical to a customer's
business. The license and implementation of the Company's software products
generally involves a significant commitment of resources by prospective
customers. As a result, the Company's sales process is often subject to delays
associated with lengthy approval processes that typically accompany significant
capital expenditures. For these and other reasons, the sales cycle associated
with the license of the Company's products is often lengthy (recently averaging
approximately four to six months) and subject to a number of significant delays
over which the Company has little or no control. In addition, the Company does
not recognize the majority of license revenues until installations are complete
and does not recognize the consulting component of service revenues until the
services are rendered, which, in certain cases, can take several quarters. As a
result, revenue recognition may be delayed in many instances. The time required
to implement the Company's products can vary significantly with the needs of its
customers and is generally a process that extends for several months. Because of
their complexity, larger implementations can involve implementation cycles that
can take multiple quarters. When the Company has provided consulting services to
implement certain larger projects, a few customers have in the past delayed
payment of a portion of license fees until implementation was complete and in
some cases have disputed the consulting fees charged for implementation. There
can be no assurance the Company will not experience additional delays or
disputes regarding payment in the future, particularly if the Company receives
orders for large, complex installations. Therefore, the Company believes that
its quarterly operating results are likely to vary significantly in the future.
Dependence Upon Key Personnel. The loss of the services of one or more of
the Company's executive officers could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to retain its key personnel. In
addition, in the past there has been turnover in certain key positions in the
Company, including Vice President, Sales and Vice President, Customer Service
and Support. Additions of new and departures of existing personnel, particularly
in key positions, could have a material adverse effect upon the Company's
business, operating results and financial condition. The Company's future
performance depends significantly upon the continued service and performance of
these officers. The Company's future success also depends on its continuing
ability to attract and retain highly qualified technical, sales and managerial
personnel. In the event the Company experiences sales growth, there will be an
increased need for technical personnel to facilitate successful product
installations. Significant delays in product installations could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company recently hired a significant number of employees, and in
order to maintain its ability to grow in the future, the Company will be
required to significantly increase the total number of employees. Competition
for such personnel is intense, and there can be no assurance that the Company
can retain its key technical, sales and managerial employees or that it can
attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future.
Limited Operating History; History of Operating Losses; Uncertainty of
Future Operating Results. The Company was founded in August 1990 and did not
begin shipping products until September 1992. Although the Company's revenues
have increased in each of the last six years, and the Company had net operating
income in each of the last twelve quarters, the Company incurred net operating
losses in each year from inception through the year ended 1994. The Company's
limited operating history makes the prediction of future operating results
difficult or impossible. Accordingly, although the Company has recently
experienced significant revenue growth, such growth should not be considered
indicative of future revenue growth, if any, or of future operating results.
There can be no assurance that any of the Company's business strategies will be
successful or that the Company will be able to sustain profitability on a
quarterly or annual basis.
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<PAGE>
Product Concentration. To date, the majority of the Company's revenues have
been attributable to sales of ClearSupport, the Company's primary product.
ClearSupport has typically been the first of the Company's products to be
deployed with the greatest number of users and often as a foundation for other
applications. The Company expects ClearSupport to account for a significant
portion of the Company's future revenues. As a result, factors adversely
affecting the pricing of or demand for the ClearSupport product such as
competition or technological change could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future financial performance will depend, in significant part, on the successful
development, introduction and customer acceptance of new and enhanced versions
of the Company's product and other products. There can be no assurance that the
Company will continue to be successful in marketing the ClearSupport product or
other products.
Dependence on New Products and Rapid Technological Change. The front office
solutions market, including the market for customer service, field service and
logistics, quality assurance, helpdesk, and sales and marketing applications, is
characterized by rapid technological change, frequent new product introductions
and evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. Any modification of third-party software
packages that the Company sublicenses for inclusion with its products could
require modification of the Company's products. The life cycles of the Company's
products are difficult to estimate. The Company's future success will depend
upon its ability to enhance its current products and develop and introduce new
products on a timely basis that keep pace with technological developments,
industry standards and the increasingly sophisticated needs of its customers.
There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to technological
change or evolving industry standards, or that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. Furthermore, reallocation of resources by the
Company, such as the diversion of research and development personnel to
development of a particular feature for a potential or existing customer, can
delay new products and certain product enhancements. If the Company is unable,
for technological or other reasons, to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition will be materially adversely effected. The
Company has in the past introduced product upgrades and enhancements on a
frequent basis, and expects to continue to introduce upgrades and enhancements
of its existing products. The Company also currently plans to introduce and
market new products. The upgrades, enhancements and new products are subject to
significant technical risks, including the difficulty of ensuring that such
products will permit successful migration of customer data from a variety of
existing platforms. In the past, the Company has experienced developmental
delays, which have resulted in delays in the commencement of commercial
shipments of new products and enhancements. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced products.
In addition, there can be no assurance that such products will meet the
requirements of the marketplace and achieve market acceptance on a timely basis,
or that the Company's current or future products will conform to industry
requirements. If any potential new products, upgrades or enhancements, including
the next version of ClearSupport, are delayed, experience quality problems or do
not achieve market acceptance, the Company's business, operating results and
financial condition will be materially adversely affected.
Expansion of Distribution Channels. The Company has historically sold its
products primarily through its direct sales force. The Company's ability to
achieve significant revenue growth in the future will depend in large part on
its success in recruiting and training sufficient sales personnel and
establishing relationships with distributors, resellers and systems integrators.
The Company is currently investing, and plans to continue to invest, significant
resources to expand its domestic and international direct sales force and
develop distribution relationships with certain third party distributors,
resellers and systems integrators. There can be no assurance that the Company
will be able to attract a sufficient number of third party distribution partners
or that such partners will recommend the Company's products. The inability to
establish successful relationships with distributors, resellers or systems
integrators could have a material adverse effect on the Company's business,
operating results or financial condition. In addition, there can be no assurance
that the Company will be able to successfully expand its direct sales force or
other distribution channels. Any failure by the Company to expand its direct
sales force or other distribution channels would materially adversely affect the
Company's business, operating results and financial condition.
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<PAGE>
Risk of Product Defects. Software products as complex as those offered by
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Although the Company conducts
extensive product testing, the Company has in the past released products that
contained defects, and has discovered software errors in certain of its new
products and enhancements after their introduction and, as a result, has
experienced delays in recognizing revenues during the period required to correct
these errors. The Company could in the future lose revenues as a result of
software errors or defects. The Company's products are typically intended for
use in applications that may be critical to a customer's business. As a result,
the Company expects that its customers and potential customers have a greater
sensitivity to product defects than the market for software products generally.
Although the Company has not experienced material adverse effects resulting from
any such errors to date, there can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of revenue or delay in market acceptance, diversion of development
resources, damage to the Company's reputation, or increased service and warranty
costs, any of which could have a material adverse effect upon the Company's
business, operating results and financial condition.
International Operations. The Company established its European headquarters
in the United Kingdom in 1994. Since then, additional offices have been opened
in Germany, France, Japan, Australia and Canada. As part of its strategy to
increase growth and profitability, the Company intends to expand its existing
international operations and enter additional international markets, which will
require significant management attention and financial resources and could
adversely affect the Company's operating margins and earnings. To successfully
expand international sales, the Company must establish additional foreign
operations and hire additional personnel. To the extent that the Company is
unable to do so in a timely manner, the Company's growth in international sales,
if any, will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for its products. Additional risks inherent in the
Company's international business activities include, among others: currency
fluctuations, unexpected changes in regulatory requirements, tariffs and other
trade barriers, costs of localizing products for foreign countries, lack of
acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences including restrictions on the repatriation
of earnings, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on the Company's future international sales and, consequently, the
Company's results of operations.
Dependence on Growth in the Front Office Software Market. The front office
software market, including the market for customer support, field service and
logistics, quality assurance, helpdesk, and sales and marketing applications, is
intensely competitive, highly fragmented and subject to rapid change. The front
office software market is still an emerging market. The Company's future
financial performance will depend in large part on continued growth in the
number of organizations adopting front office applications. There can be no
assurance that the market for front office software will continue to grow. If
the front office software market fails to grow or grows more slowly than the
Company currently anticipates, the Company's business, operating results and
financial condition would be materially adversely affected.
Dependence on Proprietary Technology; Risks of Infringement. The Company
relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which affords
only limited protection. The Company has submitted only one patent application.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to as great an
extent as the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the competitors will not independently develop similar technology. The Company
is not aware that any of its products infringe on the proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company with respect to current or future products.
The Company expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing
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<PAGE>
agreements, if required, may not be available on commercially reasonable terms
or at all, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
Acquisition; Significant Growth; Need to Manage Changing Business. In April
1996, the Company acquired Metropolis Software, Inc. Management of the Company
has been and will be required to devote substantial time and attention to the
integration of these businesses for an extended period of time. The integration
of merged companies is extensive, difficult and time consuming and subject to a
number of inherent risks. There can be no assurance that operational or
financial problems will not occur as a result of the merger. The requirement
that management devote substantial time and resources to the process of
integrating the two companies and the occurrence of any material operational or
financial problems as a result of the merger could have a material adverse
affect on the Company's business, operating results and financial condition. The
acquisition and the Company's internal development efforts have placed and
continue to place a significant strain upon its management systems and
resources. The Company has grown from 238 employees at June 30, 1996 to over 400
employees at June 30, 1997, and currently plans to continue to expand its staff.
To accommodate this growth, the Company will be required to implement a variety
of new and upgraded operational and financial systems, procedures and controls,
including the improvement of its accounting and other internal management
systems, some of which require substantial management effort. There can be no
assurance that the Company will be able to do so successfully. In addition, the
increase in the Company's number of employees and the Company's market
diversification and product development activities have resulted in increased
responsibility for the Company's management. The Company anticipates that
continued growth, if any, will require it to recruit and hire a substantial
number of new engineering, managerial, finance, sales and marketing and support
personnel; however, there can be no assurance that the Company will be
successful at hiring or retaining these personnel. The Company's ability to
compete effectively and to manage future growth, if any, will require the
Company to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train, motivate or
manage employees, including additional finance personnel, could have a material
adverse effect on the Company's business, operating results or financial
condition.
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Effect of Certain Charter Provisions. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
current plans to issue shares of Preferred Stock. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company.
15
<PAGE>
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on June 11, 1997, the following
proposals were adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of stockholders and until their successors have been duly elected and
qualified.
Number of Shares
----------------
For Withheld
---------- --------
James L. Patterson 18,544,601 98,204
David A. Stamm 18,544,601 98,204
Thomas H. Bredt 18,544,701 98,104
Mary Jane Elmore 18,544,701 98,104
Frederick Fluegel 18,544,701 98,104
2. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock, par value $0.0001
per share, from 25,000,000 to 55,000,000.
For 18,068,078
Against 549,655
Abstain 25,072
3. To approve an amendment to the Company's 1995 Stock Option/Stock Issuance
Plan to (i) provide for automatic annual increases in the share reserve in
1998 and 1999 and (ii) make certain other changes and delete provisions as
the result of changes to SEC rules governing option grants to officers and
directors subject to the short-swing profit rules of the Federal securities
laws.
For 8,965,996
Against 1,955,131
Abstain 27,232
Non Vote 7,694,446
4. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares issuable thereunder by 500,000 shares.
For 10,209,592
Against 717,799
Abstain 20,968
Non Vote 7,694,446
5. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
For 18,590,120
Against 20,195
Abstain 32,490
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
- ------ -----------
1.0 Rights Agreement, dated as of June 13, 1997 between the Company and
Harris Trust Company of California, including the Certificate of
Designation of Series A Junior Participating Preferred Stock, Form of
Right Certificate and Summary of Rights to Purchase Preferred Shares
attached thereto as Exhibits A, B and C, respectively, which is
incorporated by reference to the Form 8-A filed with the Securities and
Exchange Commission on June 24, 1997
3.1 Certificate of Incorporation of the Company, as amended to date
3.2 Amended and Restated Bylaws of the Company which is incorporated by
reference to the 8-K filed with the Securities and Exchange Commission
on June 25, 1997
4.1(1) Specimen Common Stock certificate
4.2(1) Restated Investor Rights Agreement, dated March 7, 1994, among the
Company and the investors and founders named therein
10.1(1) Form of Indemnification Agreement
10.2(1) 1991 Stock Option/Stock Issuance Plan
10.3(2) 1995 Stock Option/Stock Issuance Plan
10.4(2) Employee Stock Purchase Plan
10.5(1) Loan and Security Agreement between Silicon Valley Bank and Clarify
Inc.
10.6(1) Lease by and between Orchard Investment Company Number 6.9 and Clarify
Inc. dated March 16, 1992, as amended by the First Amendment to Lease,
dated February 28, 1995
10.7(1) Master Equipment Lease Agreement by and between Costella Kirsch/GATX
Partnership No. 1 and the Company, dated February 18, 1992
10.8(1) Master Equipment Lease Agreement by and between Venture Leasing Assoc.
and the Company, dated May 7, 1991
10.9(1) Master Equipment Lease Agreement by and between Phoenix Leasing Inc.
and the Company, dated June 30, 1993
10.10 Lease by and between Orchard Investment Company Number 901 and Clarify
Inc. dated August 8, 1996
11.1 Computation of Net Income Per Share
27.0 Commercial and Industrial Companies Article 5 of Regulation S-X
(1) Incorporated by reference from an Exhibit filed with the
Company's Registration Statement on Form S-1 (file number
33-97004) declared effective by the Securities and Exchange
Commission on November 2, 1995.
(2) Incorporated by reference from an exhibit filed with the
Company's Registration Statement on Form S-8 (file number
33-98928) filed with the Securities and Exchange Commission on
November 3, 1995.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 25, 1997 reporting under Item 5,
Other Events, that on June 11, 1997, the Board of Directors of the Company
adopted and approved Amended and Restated Bylaws of the Company.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1997 CLARIFY INC.
(Registrant)
By: /s/ Ray M. Fritz
-----------------------------------------
Ray M. Fritz
Vice President and Chief Financial
Officer (Duly Authorized Officer and
Principal Financial Officer)
18
EXHIBIT 3.1
AMENDED AND RESTATED
--------------------
CERTIFICATE OF INCORPORATION OF
-------------------------------
CLARIFY INC.
------------
A Delaware corporation
(Pursuant to Section 242 and 245
of the Delaware General Corporation Law)
CLARIFY INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
FIRST: That the name of the corporation is Clarify Inc. and
that the corporation was originally incorporated on August 27, 1990 pursuant to
the General Corporation Law.
SECOND: The Amended and Restated Certificate of Incorporation
of this corporation shall be restated to read in full as follows:
ARTICLE I
The name of this corporation is Clarify Inc.
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock
to be designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is
Fifty-Five Million (55,000,000), par value $0.0001 per share, and the number of
shares of Preferred Stock authorized to be issued is Five Million (5,000,000),
par value $0.0001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation, to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them, and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased,
1
<PAGE>
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend, and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed
from time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of this corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the full extent
permitted by the Delaware General Corporation Law as it now exists or as it may
hereafter be amended, not be liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article, nor the adoption of any provisions of this
Amended and Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE X
No action required to be taken or that may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law of
the State of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions
of this Article shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the
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liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * * *
THIRD: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining a majority vote of each of the Common Stock
and Preferred Stock, in favor of said amendment and restatement in the manner
set forth in Section 222 of the General Corporation Law.
3
<PAGE>
IN WITNESS WHEREOF, CLARIFY INC. has caused its corporate seal
to be hereunto affixed and this Amended and Restated Certificate of
Incorporation to be signed by its President and attested to by its Secretary
this 15th day of July, 1997.
CLARIFY INC.
/s/ David A. Stamm
----------------------------------------------
David A. Stamm
President and Chief Executive Officer
ATTEST
/s/ Robert V. Gunderson, Jr.
- --------------------------------------------
Robert V. Gunderson, Jr.
Secretary
4
EXHIBIT 10.10
LEASE
DATED AUGUST 8, 1996
BY AND BETWEEN
Orchard Investment Company Number 901
as Landlord
Clarify Inc.
as Tenant
AFFECTING PREMISES COMMONLY KNOWN AS
2125 O'Nel Drive
San Jose, CA. 95131
[12/15/95 MULTI TENANT NET INDUSTRIAL LEASE]
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - DEFINITION PAGE:
- ------------------------ ----
1.1 General 1
1.2 Additional Rent 1
1.3 Address for Notices 1
1.4 Agents 1
1.5 Agreed Interest Rate 1
1.6 Base Monthly Rate 1
1.7 Building 1
1.8 Commencement Date 1
1.9 Common Area 1
1.10 Common Operating Expense 1
1.11 Consumer Price Index 1
1.12 Effective Date 2
1.13 Event of Tenant's Default 2
1.14 Hazardous Materials 2
1.15 Insured and Uninsured Peril 2
1.16 Law 2
1.17 Lease 2
1.18 Lease Term 2
1.19 Lender 2
1.20 Permitted Use 2
1.21 Premises 2
1.22 Project 2
1.23 Private Restrictions 2
1.24 Real Property Taxes 2
1.25 Scheduled Commencement Date 3
1.26 Security Instrument 3
1.27 Summary 3
1.28 Tenant's Alterations 3
1.29 Tenant's Share 3
1.30 Trade Fixtures 3
ARTICLE 2 - DEMISE, CONSTRUCTION, AND ACCEPTANCE
2.1 Demise of Premises 3
2.2 Commencement Date 3
2.3 Construction of Improvements 3
2.4 Delivery and Acceptance of Possession 3
2.5 Early Occupancy 4
ARTICLE 3 - RENT
3.1 Base Monthly Rent 4
3.2 Additional Rent 4
3.3 Payment of Rent 4
3.4 Late Charge and Interest on Rent in Default 4
3.5 Security Deposit 5
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
ARTICLE 4 - USE OF PREMISES
4.1 Limitation on Use 5
4.2 Compliance with Regulations 5
4.3 Outside Area 6
4.4 Signs 6
4.5 Parking 6
4.6 Rules and Regulations 6
ARTICLE 5 - TRADE FIXTURES AND ALTERATIONS
5.1 Trade Fixtures 6
5.2 Tenant's Alterations 6
5.3 Alterations Required by Law 7
5.4 Amortization of Certain Capital Improvements 7
5.5 Mechanic's Liens 8
5.6 Taxes on Tenant's Property 8
ARTICLE 6 - REPAIR AND MAINTENANCE
6.1 Tenant's Obligation to Maintain 8
6.2 Landlord's Obligation to Maintain 9
6.3 Control of Common Area 9
ARTICLE 7 - WASTE DISPOSAL AND UTILITIES
7.1 Waste Disposal 10
7.2 Hazardous Materials 10
7.3 Utilities 11
7.4 Compliance with Governmental Regulations 11
ARTICLE 8 - COMMON OPERATING EXPENSES
8.1 Tenant's Obligation to Reimburse 12
8.2 Common Operating Expenses Defined 12
8.3 Real Property Taxes Defined 13
ARTICLE 9 - INSURANCE
9.1 Tenant's Insurance 14
9.2 Landlord's Insurance 14
9.3 Tenant's Obligation to Reimburse 15
9.4 Release and Waiver of Subrogation 15
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
ARTICLE 10 - LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
10.1 Limitation on Landlord's Liability 15
10.2 Limitation on Tenant's Recourse 16
10.3 Indemnification of Landlord 16
ARTICLE 11 - DAMAGE TO PREMISES
11.1 Landlord's Duty to Restore 16
11.2 Landlord's Right to Terminate 17
11.3 Tenant's Right to Terminate 17
11.4 Abatement of Rent 18
ARTICLE 12 - CONDEMNATION
12.1 Landlord's Termination Right 18
12.2 Tenant's Termination Right 18
12.3 Restoration and Abatement of Rent 18
12.4 Temporary Taking 18
12.5 Division of Condemnation Award 19
ARTICLE 13 - DEFAULT AND REMEDIES
13.1 Events of Tenant's Default 19
13.2 Landlord's Remedies 19
13.3 Waiver 21
13.4 Limitation on Exercise of Rights 21
13.5 Waiver by Tenant of Certain Remedies 21
ARTICLE 14 - ASSIGNMENT AND SUBLETTING
14.1 Transfer by Tenant 21
14.2 Transfer by Landlord 24
ARTICLE 15 - GENERAL PROVISIONS
15.1 Landlord's Right to Enter 24
15.2 Surrender of the Premises 25
15.3 Holding Over 25
15.4 Subordination 25
15.5 Mortgagee Protection and Attornment 26
15.6 Estoppel Certificates and Financial Statements 26
15.7 Reasonable Consent 26
15.8 Notices 26
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
15.9 Attorney's Fees 27
15.10 Corporate Authority 27
15.11 Miscellaneous 27
15.12 Termination by Exercise of Right 28
15.13 Brokerage Commissions 28
15.14 Force Majeure 28
15.15 Entire Agreement 28
EXHIBITS
Exhibit A - Site plan of the Project containing a
description of the Premises
Exhibit B - Improvement Agreement
Exhibit C - Approved Specifications
Exhibit D - NOT APPLICABLE
Exhibit E - Description of Private Restrictions
Exhibit F - Sign Criteria
Exhibit G - Form of Subordination Agreement
Exhibit H - Hazardous Materials Questionnaire
iv
<PAGE>
<TABLE>
SUMMARY OF BASIC LEASE TERMS
<CAPTION>
SECTION TERMS
(LEASE REFERENCE)
<S> <C>
A. Lease Reference Date: August 8, 1996
(Introduction)
B. Landlord: Orchard Investment Company Number 901,
(Introduction) a California general partnership
C. Tenant: Clarify Inc.,
(Introduction) a Delaware corporation
D. Premises: That area consisting of 100,375 square feet
(ss.1.21) of gross leasable area the address of which is
2125 O'Nel Drive, San Jose,
CA, within the Building as
Shown on EXHIBIT A.
E. Project: The land and improvements shown on EXHIBIT
(ss.1.22) A consisting of TWO (2) buildings the aggregate
gross leasable area of which is 195,249 square
feet.
F. Building: The building in which the Premises are located
(ss.1.7) known as 2125 O'NEL DRIVE, SAN JOSE, CA,
containing 100,375 square feet of gross leasable
area.
G. Tenants Share: 100%
(ss.1.29)
H. Tenant's Allocated Parking Stalls: 397 stalls.
(ss.4.5)
I. Commencement Date: November 12, 1996
(ss.1.26)
J. Lease Term: 60 calendar months (plus the partial month
(ss.1.18) following the Commencement Date if such
date is not the first day of the month.)
K. Base Monthly Rent: Months 1 - 60: $140,525.00
(ss.3.1)
L. Prepaid Rent: $140,525.00
(ss.3.3)
M. Security Deposit: $140,525.00
(ss.3.5)
N. Permitted Use: Office, marketing, development, storage,
(ss.4.1) and distribution of software systems.
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<PAGE>
SUMMARY OF BASIC LEASE TERMS
(CONTINUED)
O. Permitted Tenant's Alteration Limit: $10,000.00
(ss.5.2)
P. Tenant's Liability Insurance Minimum: $3,000,000.00
(ss.9.1)
Q. Landlord's Address: Suite 300
(ss.1.3) 2290 North First Street
San Jose, CA 95131
R. Tenant's Address: 2702 Orchard Parkway
(ss.1.3) San Jose, CA 95134
S. Retained Real Estate Brokers: Colliers Parrish
(ss.15.13) Attn: Jim Abarta
T. Lease: This lease includes the summary of the
(ss.1.17) Basic Lease Terms, the Lease, and the
following exhibits and addenda: First
Addendum to Lease, EXHIBIT A (site plan
of the Project containing description
of the Premises), EXHIBIT B
(Improvement Agreement), EXHIBIT C
(Approved Specifications), EXHIBIT D
(acceptance agreement) EXHIBIT E
(description of Private Restrictions),
EXHIBIT F (sign criteria), EXHIBIT G
(form of subordination agreement),
EXHIBIT H (Hazardous Materials
Questionnaire)
</TABLE>
The foregoing Summary is hereby incorporated into and made a part of
this Lease. Each reference in this Lease to any term of the Summary shall mean
the respective information set forth above and shall be construed to incorporate
all of the terms provided under the particular paragraph pertaining to such
information. In the event of any conflict between the Summary and the Lease, the
Summary shall control.
LANDLORD: TENANT:
ORCHARD INVESTMENT COMPANY NO. 901 Clarify Inc.
a California general partnership a Delaware corporation
By: NELO, a California general partnership By: /s/ David A. Stamm
-------------------
By: New England Mutual Life Insurance Co. Title: President
a Massachusetts corporations,
a general partnership Date: August 9, 1996
By: /s/ Thomas J. Lunny
-------------------
Date: August 13, 1996
vi
<PAGE>
LEASE
This Lease is dated as of the lease reference date specified in SECTION A
of the Summary and is made by and between the party identified as Landlord in
SECTION B of the Summary and the party identified as Tenant in SECTION C of the
Summary.
ARTICLE 1
DEFINITIONS
1.1 GENERAL: Any initially capitalized term that is given a special meaning
by this Article 1, the Summary, or by any other provision of this Lease
(including the exhibits attached hereto) shall have such meaning when used in
this Lease or any addendum or amendment hereto unless otherwise clearly
indicated by the context.
1.2 ADDITIONAL RENT: The term "Additional Rent" is defined in P. 3.2.
1.3 ADDRESS FOR NOTICES: The term "Address for notices" shall mean the
addresses set forth in SECTIONS Q and R of the Summary; provided, however, that
after the Commencement Date, Tenant's Address for Notices shall be the address
of the Premises.
1.4 AGENTS: The term "Agents" shall mean the following: (i) with respect to
Landlord or Tenant, the agents, employees, contractors, and invitees of such
party; and (ii) in addition with respect to Tenant, Tenant's subtenants and
their respective agents, employees, contractors, and invitees.
1.5 AGREED INTEREST RATE: The term " Agreed Interest Rate" shall mean that
interest rate determined as of the time it is to be applied that is equal to the
lesser of (i) 5% in excess of the discount rate established by the Federal
Reserve Bank of San Francisco as it may be adjusted from time to time, or (ii)
the maximum interest rate permitted by Law.
1.6 BASE MONTHLY RENT: The term "Base Monthly Rent" shall mean the fixed
monthly rent payable by Tenant pursuant to P. 3.1 which is specified in SECTION
K of the Summary.
1.7 BUILDING: The term "Building" shall mean the building in which the
Premises are located which Building is identified in SECTION F of the Summary,
The gross leasable area of which is referred to herein as the "Building Gross
Leasable Area."
1.8 COMMENCEMENT DATE: The term "Commencement Date" is the date the Lease
Term commences, which term is defined in P. 2.2.
1.9 COMMON AREA: The term "Common Area" shall mean all areas and facilities
within the Project that are not designated by Landlord for the exclusive use of
Tenant or any other lessee or other occupant of the Project, including the
parking areas, access and perimeter roads, pedestrian sidewalks, landscaped
areas, trash enclosures, recreation areas and the like.
1.10 COMMON OPERATING EXPENSES: The term "Common Operating Expenses" is
defined in P. 8.2.
1.11 CONSUMER PRICE INDEX: The term "Consumer Price Index" shall refer to
the Consumer Price Index, All Urban Consumers, subgroup "All Items", for the San
Francisco-Oakland-San Jose metropolitan area (base year 1982-84 equals 100),
which is presently being published monthly by the United States Department of
Labor, Bureau of Labor Statistics. However, if this Consumer Price Index is
changed so that base year is altered from that used as of the commencement of
the initial term of this Lease, the Consumer Price Index shall be converted in
accordance with the conversion factor published by the United States Department
of Labor,
1
<PAGE>
Bureau of Labor Statistics to obtain the same results that would have been
obtained had the base year not been changed. If no conversion factor is
available, or if the Consumer Price Index is otherwise changed, revised or
discontinued for any reason, there shall be substituted in lieu thereof and the
term "Consumer Price Index" shall thereafter refer to the most nearly comparable
official price index of the United States government in order to obtain
substantially the same result as would have been obtained had the original
Consumer Price Index not been discontinued, revised or changed, which
alternative index shall be selected by Landlord and shall be subject to Tenant's
written approval.
1.12 EFFECTIVE DATE: The term "Effective Date" shall mean the date the last
signatory to this Lease whose execution is required to make it binding on the
parties hereto shall have executed this Lease.
1.13 EVENT OF TENANT'S DEFAULT: The term "Event of Tenant's Default" is
defined in P. 13.1.
1.14 HAZARDOUS MATERIALS: The terms "Hazardous Materials" and Hazardous
Materials Laws" are defined in P. 7.2E.
1.15 INSURED AND UNINSURED PERIL: The terms "Insured Peril" and "Uninsured
Peril" are defined in P. 11.2E.
1.16 LAW: The term "Law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal or other government
agency or authority having jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date or any time during the
Lease Term.
1.17 LEASE: The term "Lease" shall mean the Summary and all elements of
this Lease identified in SECTION T of the Summary, all of which are attached
hereto and incorporated herein by this reference.
1.18 LEASE TERM: The Term "Lease Term" shall mean the term of this Lease
which shall commence on the Commencement Date and continue for the period
specified in SECTION J of the Summary.
1.19 LENDER: The term "Lender" shall mean any beneficiary, mortgages,
secured party, lessor, or other holder of any Security Instrument.
1.20 PERMITTED USE: The term "Permitted Use" shall mean the use specified
in SECTION N of the Summary.
1.21 PREMISES: The term "Premises" shall mean that building area described
in SECTION D of the Summary that is within the Building.
1.22 PROJECT: The term "Project" shall mean that real property and the
improvements thereon which are specified in SECTION E of the Summary, the
aggregate gross leasable area of which is referred to herein as the "Project
Gross Leasable Area."
1.23 PRIVATE RESTRICTIONS: The term "Private Restrictions" shall mean all
recorded covenants, conditions and restrictions, private agreements, reciprocal
easement agreements, and any other recorded instruments affecting the use of the
Premises which (i) exist as of the Effective Date, or (ii) are recorded after
the Effective Date and are approved by Tenant.
1.24 REAL PROPERTY TAXES: The term "Real Property Taxes" is defined in P.
8.3.
2
<PAGE>
1.25 SCHEDULED COMMENCEMENT DATE: SEE 2.2
1.26 SECURITY INSTRUMENTS: The term "Security Instrument" shall mean any
underlying lease, mortgage or deed of trust which now or hereafter affects the
Project, and any renewal, modification, consolidation, replacement or extension
thereof.
1.27 SUMMARY: The term "Summary" shall mean the summary of Basic Lease
Terms executed by Landlord and Tenant that is part of this Lease.
1.28 TENANT'S ALTERATIONS: The term "Tenant's Alterations" shall mean all
improvements, additions, alterations, and fixtures installed in the Premises by
Tenant at its expense which are not Trade Fixtures.
1.29 TENANT'S SHARE: The term "Tenant's Share" shall mean the percentage
obtained by dividing Tenant's Gross Leasable Area by the Building Gross Leasable
Area, which as of the Effective Date is the percentage identified in SECTION G
of the Summary.
1.30 TRADE FIXTURES: The term "Trade Fixtures shall mean (i) Tenant's
inventory, furniture, signs, and business equipment, and (ii) anything affixed
to the Premises by Tenant at its expense for purposes of trade, manufacture,
ornament or domestic use (except replacement of similar work or material
originally installed by Landlord) which can be removed without material injury
to the Premises unless such thing has, by the manner in which it is affixed,
become an integral part of the Premises.
ARTICLE 2
DEMISE, CONSTRUCTION, AND ACCEPTANCE
2.1 DEMISE OF PREMISES: Landlord hereby leases to Tenant, and Tenant leases
from Landlord, for the Lease Term upon the terms and conditions of this Lease,
the Premises for Tenant's own use in the conduct of Tenant's business together
with (i) the non-exclusive right to use the number of Tenant's Allocated Parking
Stalls within the Common Area (subject to the limitations set forth in P. 4.5),
and (ii) the non-exclusive right to use the Common Area for ingress to the
egress from the Premises. Landlord reserves the use of the exterior walls, the
roof and the area beneath and above the Premises, together with the right to
install, maintain, use, and replace ducts, wires, conduits and pipes leading
through the Premises in locations which will not materially interface with
Tenant's use of the Premises.
2.2 COMMENCEMENT DATE: The Commencement Date shall be November 12, 1996.
2.3 CONSTRUCTION OF IMPROVEMENTS: Landlord shall construct certain
improvements that shall constitute or become part of the Premises if required
by, and then in accordance with, the terms of EXHIBIT B and EXHIBIT C.
2.4 DELIVERY AND ACCEPTANCE OF POSSESSION: If this Lease provides that
Landlord must deliver Early Occupancy (as provided for in Paragraph 2 of the
First Addendum To Lease) of the Premises to Tenant on a certain date, then if
Landlord is unable to deliver Early Occupancy (as provided for in Paragraph 2 of
the First Addendum To Lease) of the Premises to Tenant on or before such date
for any reason whatsoever, this Lease shall not be void or voidable for a period
of 60 days thereafter, and Landlord shall not be liable to Tenant for any loss
or damage resulting therefrom. Tenant shall accept possession and enter into
good faith occupancy of the entire Premises and commence the operation of its
business therein within 30 days after the Commencement Date. Tenant acknowledges
that it has had an opportunity to conduct, and has conducted, such inspections
of the Premises as it deems necessary to evaluate its condition. Except as
otherwise specifically provided herein, Tenant agrees to accept possession of
the Premises in its then existing condition, "as-is", including all patent and
latent defects subject to First Addendum To Lease Paragraph 5 and completion of
Interior Improvements. Tenant's taking
3
<PAGE>
possession of any part of the Premises shall be deemed to be an acceptance by
Tenant of any work of improvement done by Landlord in such part as complete and
in accordance with the terms of this Lease except for defects of which Tenant
has given Landlord written notice within 30 days after notice to Tenant of
Substantial Completion of the Interior Improvements and subject to Tenant's
Early Occupancy right as provided for in Paragraph 2 of the First Addendum To
Lease.
2.5 EARLY OCCUPANCY: If Tenant enters or permits its contractors to enter
the Premises prior to the Commencement Date with the written permission of
Landlord, it shall do so upon all of the terms of this Lease (including its
obligations regarding indemnity and insurance) except those regarding the
obligation to pay rent, which shall commence on the Commencement Date.
ARTICLE 3
RENT
3.1 BASE MONTHLY RENT: Commencing on the Commencement Date and continuing
throughout the Lease Term, Tenant shall pay to Landlord the Base Monthly Rent
set forth in SECTION K of the Summary.
3.2 ADDITIONAL RENT: Commencing on the Commencement Date and continuing
throughout the Lease Term, Tenant shall pay the following as additional rent
(the "Additional Rent"): (i) any late charges or interest due Landlord pursuant
to P. 3.4; (ii) Tenant's Share of Common Operating Expenses as provided in P.
8.1; (iii) Landlord's share of any Subrent received by Tenant upon certain
assignments and sublettings as required by P. 14.1; (iv) any legal fees and
costs due Landlord pursuant to P. 15.9; and (v) any other charges due Landlord
pursuant to this Lease.
3.3 PAYMENT OF RENT: Concurrently with the execution of this Lease by both
parties, Tenant shall pay to Landlord the amount set forth in SECTION L of the
Summary as prepayment of rent for credit against the first installment(s) of
Base Monthly Rent. All rent required to be paid in monthly installments shall be
paid in advance on the first day of each calendar month during the Lease Term.
If SECTION K of the Summary provides that the Base Monthly Rent is to be
increased during the Lease Term and if the date of such increase does not fall
on the first day of a calendar month, such increase shall become effective on
the first day of the next calendar month. All rent shall be paid in lawful money
of the United States, without any abatement, deduction or offset whatsoever
(except as specifically provided in P. 11.4 and P. 12.3), and without any prior
demand therefore. Rent shall be paid to Landlord at its address set forth in
SECTION P of the Summary, or at such other place as Landlord may designate from
time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's Share of
Common Operating Expenses shall be prorated at the commencement and expiration
of the Lease Term.
3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT: If any Base Monthly Rent
or Additional Rent is not received by Landlord from Tenant within three business
days after Landlord has notified Tenant in writing that payment of such rent has
not been received by Landlord, then Tenant shall immediately pay to Landlord a
late charge equal to 5% of such delinquent rent as liquidated damages for
Tenant's failure to make timely payment. In no event shall this provision for a
late charge be deemed to grant to Tenant a grace period or extension of time
within which to pay any rent or prevent Landlord from exercising any right or
remedy available to Landlord upon Tenant's failure to pay any rent due under
this Lease in a timely fashion, including any right to terminate this Lease
pursuant to P. 13.2B. If any rent remains delinquent for a period in excess of
30 days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
following the date such amount became due until paid.
4
<PAGE>
3.5 SECURITY DEPOSIT: On the Effective Date, Tenant shall deposit with
Landlord the amount set forth in SECTION M of the Summary as security for the
performance by Tenant of its obligations under this Lease, and not as prepayment
of rent (the "Security Deposit"). Landlord may from time to time apply such
portion of the Security Deposit as is reasonably necessary for the following
purposes: (i) to remedy any default by Tenant in the payment of rent; (ii) to
repair damage to the Premises caused by Tenant; (iii) to clean the Premises upon
termination of the Lease; and (iv) to remedy any other default of Tenant to the
extent permitted by Law and, in this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be put contained in
California Civil Code Section 1950.7. In the event the Security Deposit or any
portion thereof is so used, Tenant agrees to pay to Landlord promptly upon
demand an amount in cash sufficient to restore the Security Deposit to the full
original amount. Landlord shall not be deemed a trustee of the Security Deposit,
may use the Security Deposit in business, and shall not be required to segregate
it from its general accounts. Tenant shall not be entitled to any interest on
the Security Deposit. If Landlord transfers the Premises during the Lease Term,
Landlord may pay the Security Deposit to any transferee of Landlord's interest
in conformity with the provisions of California Civil Code Section 1950.7 and/or
any successor statute, in which event the transferring Landlord will be released
from all liability for the return of the Security Deposit.
ARTICLE 4
USE OF PREMISES
4.1 LIMITATION ON USE: Tenant shall use the Premises solely for the
Permitted Use specified in SECTION N of the Summary. Tenant shall not do
anything in or about the Premises which will (i) cause structural injury to the
Building, or (ii) cause damage to any part of the Building except to the extent
reasonably necessary for the installation of Tenant's Trade Fixtures and
Tenant's Alterations, and then only in a manner which has been first approved by
Landlord in writing. Tenant shall not operate any equipment within the Premises
which will (i) materially damage the Building or the Common Area, (ii) overload
existing electrical systems or other mechanical equipment servicing the
Building, (iii) impair the efficient operation of the sprinkler system or the
heating, ventilating or air conditioning ("HVAC") equipment within or servicing
the Building, or (iv) damage, overload or corrode the sanitary sewer system.
Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls
or columns of the Building or set any load on the floor in the excess of the
load limits for which such items are designed nor operate hard wheel forklifts
within the Premises. Any dust, fumes, or waste products generated by Tenant's
use of the Premises shall be contained and disposed so that they do not (i)
create an unreasonable fire or health hazard, (ii) damage the Premises, or (iii)
result in the violation of any Law. Except as approved by Landlord, Tenant shall
not change the exterior of the Building or install any equipment or antennas on
or make any penetrations of the exterior or roof of the Building. Tenant shall
not commit any waste in or about the Premises, and Tenant shall keep the
Premises in an neat, clean, attractive and orderly condition, free of any
nuisances. If Landlord designates a standard window covering for use throughout
the Building, Tenant shall use this standard window covering to cover all
windows in the Premises. Tenant shall not conduct on any portion of the Premises
or the Project any sale of any kind, including any public or private auction,
fire sale, going-out-of-business sale, distress sale or other liquidation sale.
4.2 COMPLIANCE WITH REGULATIONS: Tenant shall not use the Premises in any
manner which violates any laws or Private Restrictions which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions. Tenant shall not use the Premises in any manner which
will cause a cancellation of any insurance policy covering Tenant's Alternations
or any improvements installed by Landlord at its expense or which poses an
unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or
permit to be kept, used, or sold in or about the Premises any article which may
be prohibited by the standard form of fire insurance policy. Tenant shall comply
with all reasonable requirements of any insurance company, insurance
underwriter, or Board of Fire Underwriters which are necessary to maintain the
insurance coverage carried by either Landlord or Tenant pursuant to this Lease.
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4.3 OUTSIDE AREAS: No materials, supplies, tanks or containers, equipment,
finished products or semi-finished products, raw materials, inoperable vehicles
or articles of any nature shall be stored upon or permitted to remain outside of
the Premises except in fully fenced and screened areas outside the Building
which have been designed for such purpose and have been approved in writing by
Landlord for such use by Tenant.
4.4 SIGN: Tenant shall not place on any portion of the Premises any sign,
placard, lettering in or on windows, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. All such approved signs shall
strictly conform to all Laws, Private Restrictions, and Landlord's sign criteria
attached as EXHIBIT F, and shall be installed at the expense of Tenant. Tenant
shall maintain such signs in good condition and repair.
4.5 PARKING: Tenant is allocated and shall have the non-exclusive right to
use not more than the number of Tenant's Allocated Parking Stalls contained
within the Project described in SECTION H of the Summary for its use and the use
of Tenant's Agents, the location of which may be designated from time to time by
Landlord. Tenant shall not at any time use more parking spaces than the number
so allocated to Tenant or park its vehicles or the vehicles of others in any
portion of the Project not designated by Landlord as a non-exclusive parking
area. Tenant shall not have the exclusive right to use any specific parking
space except for a total of 10 stalls of Tenant's Allocated Parking Stalls may
be marked for its exclusive use at the main entrance to the Premises. If
Landlord grants to any other tenant the exclusive right to use any particular
parking space(s), Tenant shall not use such spaces. Landlord reserves the right,
after having given Tenant reasonable notice, to have any vehicles owned by
Tenant or Tenant's Agents utilizing parking spaces in excess of the parking
spaces allowed for Tenant's use to be towed away at Tenant's cost. All trucks
and delivery vehicles shall be (i) parked at the rear of the Building, (ii)
loaded and unloaded in a manner which does not interfere with the businesses of
other occupants of the Project, and (iii) permitted to remain on the Project
only so long as is reasonably necessary to complete loading and unloading. In
the event Landlord elects or is required by any Law to limit or control parking
in the Project, whether by validation of parking tickets or any other method of
assessment, Tenant agrees to participate in such validation or assessment
program under such reasonable rules and regulations as are from time to time
established by Landlord.
4.6 RULES AND REGULATIONS: Landlord may from time to time promulgate
reasonable and nondiscriminatory rules and regulations applicable to all
occupants of the Project for the care and orderly management of the Project and
the safety of its tenants and invitees. Such rules and regulations shall be
binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees
to abide by such rules and regulations. If there is a conflict between the rules
and regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible for the violation by any
other tenant of the Project of any such rules and regulations.
ARTICLE 5
TRADE FIXTURES AND ALTERATIONS
5.1 TRADE FIXTURES: Throughout the Lease Term, Tenant may provide and
install, and shall maintain in good condition, any Trade Fixtures required in
the conduct of its business in the Premises. All trade Fixtures shall remain
Tenant's property.
5.2 TENANT'S ALTERATIONS: Construction by Tenant of Tenant's Alterations
shall be governed by the following:
A. Tenant shall not construct any Tenant's Alterations or
otherwise alter the Premises without Landlord's prior written approval. Tenant
shall be entitled, without Landlord's prior approval, to make Tenant's
Alterations (i) which do not affect the structural or exterior parts
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or water tight character of the Building, and (ii) the reasonably estimated cost
of which, plus the original cost of any part of the Premises removed or
materially altered in connection with such Tenant's Alterations, together do not
exceed the Permitted Tenant Alterations Limit specified in SECTION O of the
Summary per work of improvement. In the event Landlord's approval for any
Tenant's Alterations is required, Tenant shall not construct the Leasehold
Improvement until Landlord has approved in writing the plans and specifications
therefor, and such Tenant's Alterations shall be constructed substantially in
compliance with such approved plans and specifications by a licensed contractor
first approved by Landlord. All Tenant's Alterations constructed by Tenant shall
be constructed by a licensed contractor in accordance with all Laws using new
materials of good quality.
B. Tenant shall not commence construction of any Tenant's
Alterations until (i) all required governmental approvals and permits have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant has given Landlord at least five days' prior
written notice of its intention to commence such construction, and (iv) if
reasonably requested by Landlord, Tenant has obtained contingent liability and
broad form builders' risk insurance in an amount reasonably satisfactory to
Landlord if there are any perils relating to the proposed construction not
covered by insurance carried pursuant to Article 9.
C. All Tenant's Alterations shall remain the property of
Tenant during the Lease Term but shall not be altered or removed from the
Premises. At the expiration or sooner termination of the Lease Term, all
Tenant's Alterations shall be surrendered to Landlord as part of the realty and
shall then become Landlord's property, and Landlord shall have no obligation to
reimburse Tenant for all or any portion of the value or cost thereof; provided,
however, that if at least 90 days prior to the expiration of this Lease,
Landlord requires Tenant to remove any Tenant's Alterations, Tenant shall so
remove such Tenant's Alterations prior to the expiration or sooner termination
of the Lease Term. Notwithstanding the foregoing, Tenant shall not be obligated
to remove any Tenant's Alterations with respect to which the following is true:
(i) Tenant was required, or elected, to obtain the approval of Landlord to the
installation of the Leasehold Improvement in question; (ii) at the time Tenant
requested Landlord's approval, Tenant requested of Landlord in writing that
Landlord inform Tenant of whether or not Landlord would require Tenant to remove
such Leasehold Improvement at the expiration of the Lease Term; and (iii) at the
time Landlord granted its approval, it did not inform Tenant that it would
require Tenant to remove such Leasehold Improvement at the expiration of the
Lease Term.
5.3 ALTERATIONS REQUIRED BY LAW: Tenant shall make any alteration, addition
or change of any sort to the Premises that is required by any Law because of (i)
Tenant's particular use or change of use of the Premises; (ii) Tenant's
application for any permit or governmental approval; or (iii) Tenant's
construction or installation of any Tenant's Alterations or Trade Fixtures. Any
other alteration, addition, or change required by Law which is not the
responsibility of Tenant pursuant to the foregoing shall be made by Landlord
(subject to Landlord's right to reimbursement from Tenant specified in P. 5.4).
5.4 AMORTIZATION OF CERTAIN CAPITAL IMPROVEMENTS: Tenant shall pay
Additional Rent in the event Landlord reasonably elects or is required to make
any of the following kinds of capital improvements to the Project and the cost
thereof is not reimbursable as a Common Operating Expense: (i) capital
improvements required to be constructed in order to comply with any Law
(excluding any Hazardous Materials Law) not in effect or applicable to the
Project as of the Effective Date; (ii) modification of existing or construction
of additional capital improvements or building service equipment for the purpose
of reducing the consumption of utility services or Common Operating Expenses of
the Project, (but only to the extent of the cost savings realized by such
improvement of equipment); (iii) replacement of capital improvements or building
service equipment existing as of the Effective Date when required because of
normal wear and tear; and (iv) restoration of any part of the Building that has
been damaged by any peril to the extent the cost thereof is not covered by
insurance proceeds actually recovered by Landlord up to a maximum amount per
occurrence of 10% of the then replacement cost of the Building. The
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amount of Additional Rent Tenant is to pay with respect to each such capital
improvement shall be determined as follows:
A. All actual direct costs paid by Landlord to construct such
improvements (including financing costs) shall be amortized over the useful life
of such improvement (as reasonably determined by Landlord in accordance with
generally accepted accounting principles) with interest on the unamortized
balance at the then prevailing market rate Landlord would pay if it borrowed
funds to construct such improvements from an institutional lender, and Landlord
shall inform Tenant of the monthly amortization payment required to so amortize
such costs, and shall also provide Tenant with the information upon which such
determination is made.
B. As additional Rent, Tenant shall pay at the same time the
Base Monthly Rent is due an amount equal to Tenant's Share of that portion of
such monthly amortization payment fairly allocable to the Building (as
reasonably determined by Landlord) for each month after such improvements are
completed until the first to occur of (i) the expiration of the Lease Term (as
it may be extended), or (ii) the end of the term over which such costs were
amortized.
5.5 MECHANIC'S LIENS: Tenant shall keep the Project free from any liens and
shall pay when due all bills arising out of any work performed, materials
furnished, or obligations incurred by Tenant or Tenant's Agents relating to the
Project. If any claim of lien is recorded (except those caused by Landlord or
Landlord's Agents), Tenant shall bond against or discharge the same within 10
days after the same has been recorded against the Project. Should any lien be
filed against the Project or any action be commenced affecting title to the
Project, the party receiving notice of such lien or action shall immediately
give the other party written notice thereof.
5.6 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency any and
all taxes, assessments, license fees and public charges levied, assessed or
imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term. If
any tax or other charge is assessed by any governmental agency because of the
execution of this Lease, such tax shall be paid by Tenant. On demand by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments.
ARTICLE 6
REPAIR AND MAINTENANCE
6.1 TENANT'S OBLIGATION TO MAINTAIN: Except as otherwise provided in P.
6.2, P. 11.1, and P. 12.3, Tenant shall be responsible for the following during
the Lease Term:
A. Tenant shall clean and maintain in good order, condition,
and repair and replace when necessary the Premises and every part thereof,
through regular inspections and servicing, including, but not limited to: (i)
all plumbing and sewage facilities (including all sinks, toilets, faucets and
drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing
system; (ii) all fixtures, interior walls, floors, carpets and ceilings; (iii)
all windows, doors, entrances, plate glass, showcases and skylights (including
cleaning both interior and exterior surfaces); (iv) all electrical facilities
and all equipment (including all lighting fixtures, lamps, and bulbs, tubes,
fans, vents, exhaust equipment and systems); and (v) any automatic fire
extinguisher equipment in the Premises.
B. With respect to utility facilities serving the Premises
(including electrical wiring and conduits, gas lines, water pipes, and plumbing
and sewage fixtures and pipes), Tenant shall be responsible for the maintenance
and repair of any such facilities which serve only the Premises, including all
such facilities that are within the walls or floor, or on the roof of the
Premises, and any part of such facility that is not within the Premises, but
only up to the point where such facilities join a main or other junction (e.g.,
sewer main or electrical transformer) from which such utility services are
distributed to other parts of the Project as well as to the Premises, Tenant
shall replace any damaged or broken glass in the Premises (including all
interior and exterior doors and windows) with glass of the same kind, size and
quality. Tenant shall repair
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any damage to the Premises (including exterior doors and windows) caused by
vandalism or any unauthorized entry.
C. Tenant shall (i) maintain, repair and replace when
necessary all HVAC equipment which services only the Premises, and shall keep
the same in good condition through regular inspection and servicing, and (ii)
maintain continuously throughout the Lease Term a service contract for the
maintenance of all such HVAC equipment with a licensed HVAC repair and
maintenance contractor approved by Landlord, which contract provides for the
periodic inspection and servicing of the HVAC equipment at least once every 90
days during the Lease Term. Notwithstanding the foregoing, if Landlord
reasonably determines that Tenant is not properly maintaining the HVAC equipment
within fifteen (15) days after written notice to Tenant, Landlord may elect at
any time thereafter to assume responsibility for the maintenance, repair and
replacement of such HVAC equipment which serves only the Premises. Tenant shall
maintain continuously throughout the Lease Term a service contract for the
washing of all windows (both interior and exterior surfaces) in the Premises
with a contractor approved by Landlord, which contract provides for the periodic
washing of all such windows at least once every 90 days during the Lease Term.
Tenant shall furnish Landlord with copies of all such service contracts, which
shall provide that they may not be cancelled or changed without at least 30
days' prior written notice to Landlord.
D. All repairs and replacements required of Tenant shall be
promptly made with new materials of like kind and quality. If the work affects
the structural parts of the Building or if the estimated cost of any item of
repair or replacement is in excess of the Permitted Tenant's Alterations Limit,
then Tenant shall first obtain Landlord's written approval of the scope of the
work, plans therefor, materials to be used, and the contractor. Landlord hereby
assigns to Tenant all manufacturer and installation warranties covering the
portion of the Premises for which tenant is obligated to maintain as provided
for in Article 6.1 herein, and agrees to cooperate with Tenant in enforcing such
warranties.
See First Addendum To Lease Paragraph 5
6.2 LANDLORD'S OBLIGATION TO MAINTAIN: Landlord shall repair, maintain and
operate the Common Area and repair and maintain the roof, exterior and
structural parts of the building(s) located on the Project so that the same are
kept in good order and repair. If there is central HVAC or other building
service equipment and/or utility facilities serving portions of the Common Area
and/or both the Premises and other parts of the Building, Landlord shall
maintain and operate (and replace when necessary) such equipment. Landlord shall
not be responsible for repairs required by an accident, fire or other peril or
for damage caused to any part of the Project by any act or omission of Tenant or
Tenant's Agents except as otherwise required by Article 11. Landlord may engage
contractors of its choice to perform the obligations required of it by this
Article, and the necessity of any expenditure to perform such obligations shall
be at the sole discretion of Landlord. Landlord, at Landlord's sole cost, shall
repair and maintain the structural portions of the Building.
6.3 CONTROL OF COMMON AREA: Landlord shall at all times have exclusive
control of the Common Area. Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any abatement of rent, to: (i) close any part of the Common Area to whatever
extent required in the opinion of Landlord's counsel to prevent a dedication
thereof or the accrual of any prescriptive rights therein; (ii) temporarily
close the Common Area to perform maintenance or for any other reason deemed
sufficient by Landlord, (iii) change the shape, size, location and extent of the
Common Area; (iv) eliminate from or add to the Project any land or improvement,
including multi-deck parking structures; (v) make changes to the Common Area
including, without limitation, changes in the location of driveways entrances,
passageways, doors and doorways, elevators, stairs, restrooms, exits, parking
spaces, parking areas, sidewalks or the direction of the flow of traffic and the
site of the Common Area; (vi) remove unauthorized persons from the Project;
and/or (vii) change the name of the Project
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provided, however, that Tenant shall at all times have reasonable access to and
from the Premises and the parking rights granted hereunder, and Tenant's
reasonable use and enjoyment of the Premises shall not be impaired. Tenant shall
keep the Common Area clear of all obstructions created or permitted by Tenant.
If in the opinion of Landlord unauthorized persons are using any of the Common
Area by reason of the presence of Tenant in the Building, Tenant, upon demand of
Landlord, shall restrain such unauthorized use by appropriate proceedings. In
exercising any such rights regarding the Common Area, (i) Landlord shall make a
reasonable effort to minimize any disruption to Tenant's business, and (ii)
Landlord shall not exercise its rights to control the Common Area in a manner
that would materially interfere with Tenant's use of the Premises without first
obtaining Tenant's written consent. Landlord shall have no obligation to provide
guard services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties; provided, however, that nothing contained herein shall
prevent Landlord, at its sole option, from providing security measures for the
Project.
ARTICLE 7
WASTE DISPOSAL AND UTILITIES
7.1 WASTE DISPOSAL: Tenant shall store its waste either inside the Premises
or within outside trash enclosures that are fully fenced and screened in
compliance with all Private Restrictions, and designed for such purpose. All
entrances to such outside trash enclosures shall be kept closed, and waste shall
be stored in such manner as not to be visible from the exterior of such outside
enclosures. Tenant shall cause all of its waste to be regularly removed from the
Premises at Tenant's sole cost. Tenant shall keep all fire corridors and
mechanical equipment rooms in the Premises free and clear of all obstructions at
all times.
7.2 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of Hazardous Materials on the Project:
A. Any handling, transportation, storage, treatment, disposal
or use of Hazardous Materials by Tenant and Tenant's Agents after the Effective
Date in or about the Project shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold harmless Landlord from and against
any liabilities, losses, claims, damages, lost profits, consequential damages,
interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees,
court costs, remediation costs, investigation costs, and other expenses which
result from or arise in any manner whatsoever out of the use, storage,
treatment, transportation, release, or disposal of Hazardous Materials on or
about the Project by Tenant or Tenant's Agents after the Effective Date.
B. If the presence of Hazardous Materials on the Project
caused or permitted by Tenant or Tenant's Agents after the Effective Date
results in contamination or deterioration of water or soil resulting in a level
of contamination greater than the levels established as acceptable by any
governmental agency having jurisdiction over such contamination, then Tenant
shall promptly take any and all action necessary to investigate and remediate
such contamination if required by Law or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates to the use
of the Project or any part thereof. Tenant shall further be solely responsible
for, and shall defend, indemnify and hold Landlord and its agents harmless from
and against, all claims, costs and liabilities, including attorneys' fees and
costs, arising out of or in connection with any investigation and remediation
required hereunder to return the Project to its condition existing prior to the
appearance of such Hazardous Materials.
C. Landlord and Tenant shall each give written notice to the
other as soon as reasonably practicable of (i) any communication received from
any governmental authority concerning Hazardous Materials which relates to the
Project, and (ii) any contamination of the Project by Hazardous Materials which
constitutes a violation of any Hazardous Materials Law. Tenant may use small
quantities of household chemicals such as adhesives, lubricants, and
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cleaning fluids in order to conduct its business at the Premises and such other
Hazardous Materials as are necessary for the operation of Tenant's business of
which Landlord receives notice prior to such Hazardous Materials being brought
onto the Premises and which Landlord consents in writing may be brought onto the
Premises. At any time during the Lease Term, Tenant shall, within five days
after written request therefore received from Landlord, disclose in writing all
Hazardous Materials that are being used by Tenant on the Project, the nature of
such use, and the manner of storage and disposal.
D. Landlord may cause testing wells to be installed on the
Project, and may cause the ground water to be tested to detect the presence of
Hazardous Material by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which give rise to liability of
Tenant pursuant to its indemnity given in P. 7.2A and/or P. 7.2B.
E. As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, materials or waste which is or becomes regulated
by any local governmental authority, the State of California or the United
States Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance which is (i)
listed under Article 9 or defined as hazardous or extremely hazardous pursuant
to Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42
U.S.C. 6903), or (iii) defined as "hazardous substance" pursuant to Section 101
of the Comprehensive Environmental Response; Compensation and Liability Act, 42
U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous
Material Law" shall mean any statute, Law, ordinance, or regulation of any
governmental body or agency (including the U.S. Environmental Protection Agency,
the California Regional Water Quality Control Board, and the California
Department of Health Services) which regulates the use, storage, release or
disposal of any Hazardous Material.
F. The obligations of Landlord and Tenant under this P. 7.2.
shall survive the expiration or earlier termination of the Lease Term. The
rights and obligations of Landlord and Tenant with respect to issues relating to
Hazardous Materials are exclusively established by this P. 7.2. In the event of
any inconsistency between any other part of this Lease and this P. 7.2, the
terms of this P. 7.2 shall control.
7.3 UTILITIES: Tenant shall promptly pay, as the same become due, all
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term, including, without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, and water service available to the Premises as of the
Commencement Date), and (ii) penalties for discontinued or interrupted service.
If any utility service is not separately metered to the Premises, then Tenant
shall pay its pro rata share of the cost of such utility service with all others
served by the service not separately metered. However, if Landlord determines
that Tenant is using a disproportionate amount of any utility service not
separately metered, then Landlord at its election may (i) periodically charge
Tenant, as Additional Rent, a sum equal to Landlord's reasonable estimate of the
cost of Tenant's excess use of such utility service, or (ii) install a separate
meter (at Tenant's expense) to measure the utility service supplied to the
Premises.
7.4 COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Landlord and Tenant shall
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control. Tenant
shall not be entitled to terminate this Lease nor to any abatement in rent by
reason of such compliance.
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ARTICLE 8
COMMON OPERATING EXPENSES
8.1 TENANT'S OBLIGATION TO REIMBURSE: As Additional Rent, Tenant shall pay
Tenant's Share (specified in SECTION G of the Summary) of all Common Operating
Expenses; provided, however, if the Project contains more than one building,
then Tenant shall pay Tenant's Share of all Common Operating Expenses fairly
allocable to the Building, including (i) all Common Operating Expenses paid with
respect to the maintenance, repair, replacement and use of the Building, and
(ii) a proportionate share (based on the Building Gross Leasable Area as a
percentage of the Project Gross Leasable Area) of all Common Operating Expenses
which relate to the Project in general are not fairly allocable to any one
building that is part of the Project. Tenant shall pay such share of the actual
Common Operating Expenses incurred or paid by Landlord but not theretofore
billed to Tenant within 30 days after receipt of a written bill therefore from
Landlord, on such periodic basis as Landlord shall designate, but in no event
more frequently than once a month. Alternatively, Landlord may from time to time
require that Tenant pay Tenant's Share of Common Operating Expenses in advance
in estimated monthly installments, in accordance with the following: (i)
Landlord shall deliver to Tenant Landlord's reasonable estimate of the Common
Operating expenses it anticipates will be paid or incurred for the Landlord's
fiscal year in question; (ii) during such Landlord's fiscal year Tenant shall
pay such share of the estimated Common Operating Expenses in advance in monthly
installments as required by Landlord due with the installments of Base Monthly
Rent; and (iii) within 90 days after the end of each Landlord's fiscal year,
Landlord shall furnish to Tenant a statement in reasonable detail of the actual
Common Operating Expenses paid or incurred by Landlord during the just ended
Landlord's fiscal year and thereupon there shall be an adjustment between
Landlord and Tenant, with payment to Landlord or credit by Landlord against the
next installment of Base Monthly Rent or Additional Rent, as the case may
require, within 30 days after delivery by Landlord to Tenant of said statement,
so that Landlord shall receive the entire amount of Tenant's Share of all Common
Operating Expenses for such Landlord's fiscal year and no more. Tenant shall
have the right at its expense, exercisable upon reasonable prior written notice
to Landlord, to inspect at Landlord's office during normal business hours
Landlord's books and records as they relate to Common Operating Expenses. Such
inspection must be within 90 days of Tenant's receipt of Landlord's annual
statement for the same, and shall be limited to verification of the charges
contained in such statement. Tenant may not withhold payment of such bill
pending completion of such inspection. Any credit due to Tenant at the end of
the Lease Term shall be paid with delivery of the final statement. If Tenant's
audit discloses that Landlord overstated Tenant's share of Common Operating
Expenses by more than 5%, Landlord shall pay the reasonable cost of Tenant's
audit.
8.2 COMMON OPERATING EXPENSES DEFINED: The term "Common Operating Expenses"
shall mean the following:
A. All costs and expenses paid or incurred by Landlord in
doing the following (including payments to independent contractors providing
services related to the performance of the following: (i) maintaining, cleaning,
repairing and resurfacing the roof (including repair of leaks) and the exterior
surfaces (including painting) of all buildings located on the Project; (ii)
maintenance of the liability, fire and property damage insurance covering the
Project carried by Landlord pursuant to P. 9.2 (including the prepayment of
premiums for coverage of up to one year); (iii) maintaining, repairing,
operating and replacing when necessary HVAC equipment, utility facilities and
other building service equipment; (iv) providing utilities to the Common Area
(including lighting, trash removal and water for landscaping irrigation); (v)
complying with all applicable Laws and Private Restrictions; (vi) operating,
maintaining, repairing, cleaning, painting, restriping and resurfacing the
Common Area; (vii) replacement or installation of lighting fixtures, directional
or other signs and signals, irrigation systems, trees, shrubs, ground cover and
other plant materials, and all landscaping in the Common Area; and (viii)
providing security;
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B. The Following costs: (i) Real Property Taxes as defined in
P. 8.3; (ii) the amount of any "deductible" paid by Landlord with respect to
damage caused by any Insured Peril; (iii) the cost to repair damage caused by an
Uninsured Peril up to a maximum amount in any 12 month period equal to 2% of the
replacement cost of the buildings or other improvements damaged; and (iv) that
portion of all compensation (including benefits and premiums for workers'
compensation and other insurance) paid to or on behalf of employees of Landlord
but only to the extent they are involved in the performance of the work
described by P. 8.2A that is fairly allocable to the Project;
C. Fees for management services rendered by either Landlord or
a third party manager engaged by Landlord (which may be a party affiliated with
Landlord), except that the total amount charged for management services and
included in Tenant's Share of Common Operating Expenses shall not exceed the
monthly rate of 3% of the Base Monthly Rent.
D. All additional costs and expenses incurred by landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Project which would be considered a current expense (and not a capital
expenditure) pursuant to generally accepted accounting principles; provided,
however, that Common Operating Expenses shall not include any of the following:
(i) payments on any loans or ground leases affecting the Project; (ii)
depreciation of any buildings or any major systems of building service equipment
within the Project; (iii) leasing commissions; (iv) the costs of tenant
improvements installed for the exclusive use of other tenants of the Project;
and (v) any cost incurred in complying with Hazardous Materials Laws, which
subject is governed exclusively by P. 7.2. See First Addendum to Lease Paragraph
9.
8.3 REAL PROPERTY TAXES DEFINED: The term "Real Property Taxes" shall mean
all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments resulting from a change in
ownership, new construction, or any other cause), now or hereafter imposed by
any governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of all or any
portion of the Project (as now constructed or as may at any time hereafter be
construed, altered, or otherwise changed) or Landlord's interest therein, the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located on the Project, the gross receipts, income, or
rentals from the Project, or the use of parking areas, public utilities, or
energy within the Project, or Landlord's business of leasing the Project. If at
any time during the Lease Term the method of taxation or assessment of the
Project prevailing as of the Effective Date shall be altered so that in lieu of
or in addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Project or
Landlord's interest therein, or (ii) on a measured by the gross receipts, income
or rentals from the Project, on Landlord's business of leasing the Project, or
computed in any manner with respect to the operation of the Project, then any
such tax or charge, however designed, shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is based upon property or rents unrelated to the Project, then only that
part of such Real Property Tax that is fairly allocable to the Project shall be
included within the meaning of the term "Real Property Taxes". Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, transfer, gift or franchise taxes of Landlord or the federal or
state net income tax imposed on Landlord's income from all sources. See First
Addendum To Lease Paragraph 10.
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ARTICLE 9
INSURANCE
9.1 TENANT INSURANCE: Tenant Shall maintain insurance complying with all of
the following:
A. Tenant shall procure, pay for and keep in full force and
effect the following:
(1) Commercial general liability insurance, including
property damage, against liability for personal injury, bodily injury, death and
damage to property occurring in or about, or resulting from an occurrence in or
about, the Premises with combined single limit coverage of not less than the
amount of Tenant's Liability Insurance Minimum specified in SECTION P of the
Summary, which insurance shall contain a "contractual liability" endorsement
insuring Tenant's performance of Tenant's obligation to indemnify Landlord
contained in P. 10.3;
(2) Fire and property damage insurance in so-called
"all risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations for
the full actual replacement cost thereof;
(3) Such other insurance that is required by any
Lender.
B. Where applicable and required by Landlord, each policy of
insurance required to be carried by Tenant pursuant to this P. 9.1: (i) shall
name Landlord and such other parties in interest as Landlord reasonably
designates as additional insured; (ii) shall be primary insurance which provides
that the insurer shall be liable for the full amount of the loss up to and
including the total amount of liability set forth in the declarations without
the right to contribution from any other insurance coverage of Landlord; (iii)
shall be in a form satisfactory to Landlord; (iv) shall be carried with
companies reasonably acceptable to Landlord; (v) shall provide that such policy
shall not be subject to cancellation, lapse or reduction in coverage except
after at least 30 days prior written notice to Landlord so long as such
provision of 30 days notice is reasonably obtainable, but in any event not less
than 10 days prior written notice; (vi) shall not have a "deductible" in excess
of such amount as is approved by Landlord; (vii) shall contain a cross liability
endorsement; and (viii) shall contain a "severability" clause. If Tenant has in
full force and effect a blanket policy of liability insurance with the same
coverage for the Premises as described above, as well as other coverage of other
premises and properties of Tenant, or in which Tenant has some interest, such
blanket insurance shall satisfy the requirements of this P. 9.1.
C. A copy of each paid-up policy evidencing the insurance
required to be carried by Tenant pursuant to this P. 9.1 (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this P. 9.1, and
containing the provisions specified herein, shall be delivered to Landlord prior
to the time Tenant or any of its Agents enters the Premises and upon renewal of
such policies, but not less than 5 days prior to the expiration of the term of
such coverage. Landlord may, at any time, and from time to time, inspect and/or
copy any and all insurance policies required to be procured by Tenant pursuant
to this P. 9.1. If any Lender or insurance advisor reasonably determines at any
time that the amount of coverage required for any policy of insurance Tenant is
to obtain pursuant to this P. 9.1 is not adequate, then Tenant shall increase
such coverage for such insurance to such amount as such Lender or insurance
advisor reasonably deems adequate, not to exceed the level of coverage for such
insurance commonly carried by comparable businesses similarly situated.
9.2 LANDLORD'S INSURANCE: Landlord shall have the following obligation and
options regarding insurance:
A. Landlord shall maintain a policy or policies of fire and
property damage insurance in so-called "all risk" form insuring Landlord (and
such others as Landlord may
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designate) against loss of rents for a period of not less than 12 months and
from physical damage to the Project with coverage of not less than the full
replacement cost thereof. Landlord may so insure the Project separately, or may
insure the Project with other property owned by Landlord which Landlord elects
to insure together under the same policy or policies. Such fire and property
damage insurance (i) may be endorsed to cover loss caused by such additional
perils against which Landlord may elect to insure, including earthquake and/or
flood, and to provide such additional coverage as Landlord reasonably requires,
and (ii) shall contain reasonable "deductibles" which, in the case of earthquake
and flood insurance, may be up to 15% of the replacement value of the property
insured or such higher amount as is then commercially reasonable. Landlord shall
not be required to cause such insurance to cover any Trade Fixtures or Tenant's
Alterations of Tenant.
B. Landlord may maintain a policy or policies of commercial
general liability insurance insuring Landlord (and such others as are designated
by Landlord) against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about the
Project, with combined single limit coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.
9.3 TENANT'S OBLIGATION TO REIMBURSE: If Landlord's insurance rates for the
Building are increased at any time during the Lease Term as a result of the
nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the
full amount of such increase immediately upon receipt of a bill from Landlord
therefor.
9.4 RELEASE AND WAIVER OF SUBROGATION: The parties hereto release each
other, and their respective agents and employees, from any liability for injury
to any person or damage to property that is caused by or results from any risk
insured against under any valid and collectible insurance policy carried or
required hereunder to be carried by either of the parties which contains a
waiver of subrogation by the insurer and is in force at the time of such injury
or damage; subject to the following limitations: (i) the foregoing provision
shall not apply to the commercial general liability insurance described by
subparagraphs P. 9.1A and P. 9.2B; (ii) such release shall apply to liability
resulting from any risk insured against or covered by self-insurance maintained
or provided by Tenant to satisfy the requirements of P. 9.1 to the extent
permitted by this Lease; and (iii) Tenant shall not be released from any such
liability to the extent any damages resulting from such injury or damage are not
covered by the recovery obtained by Landlord from such insurance, but only if
the insurance in question permits such partial release in connection with
obtaining a waiver of subrogation from the insurer. This release shall be in
effect only so long as the applicable insurance policy contains a clause to the
effect that this release shall not affect the right of the insured to recover
under such policy. Each party shall use reasonable efforts to cause each
insurance policy obtained by it to provide that the insurer waives all right of
recovery by way of subrogation against the other party and its agents and
employees in connection with any injury or damage covered by such policy.
However, if any insurance policy cannot be obtained with such a waiver of
subrogation, or if such waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is to be obtained does not pay
such additional cost, then the party obtaining such insurance shall notify the
other party of that fact and thereupon shall be relieved of the obligation to
obtain such waiver of subrogation rights from the insurer with respect to the
particular insurance involved.
ARTICLE 10
LIMITATION ON LANDLORD'S
LIABILITY AND INDEMNITY
10.1 LIMITATION ON LANDLORD'S LIABILITY: Landlord shall not be liable to
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent (except as expressly provided otherwise herein), for any injury to
Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents,
or loss to Tenant's business resulting from any cause, including without
limitation any: (i) failure, interruption or installation of any HVAC or other
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utility system or service; (ii) failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility serving the Project; (iv)
vandalism or forcible entry by unauthorized persons or the criminal act of any
person; or (v) penetration of water into or onto any portion of the Premises or
the Building through roof leaks or otherwise. Notwithstanding the foregoing but
subject to P. 9.4, Landlord shall be liable for any such injury, damage or loss
which is proximately caused by Landlord's or Landlord's agents willful
misconduct or active negligence of which Landlord has actual notice and a
reasonable opportunity to cure but which it fails to so cure.
10.2 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association or other form of business
entity: (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint ventures,
members, owners, stockholders, or other principals or representatives of such
business entity; and (ii) Tenant shall not have recourse to the assets of such
officers, directors, trustees, partners, joint ventures, members, owners,
stockholders, principals or representatives except to the extent of their
interest in the Project. Tenant shall have recourse only to the interest of
Landlord in the Project for the satisfaction of the obligations of Landlord and
shall not have recourse to any other assets of Landlord for the satisfaction of
such obligations.
10.3 INDEMNIFICATION OF LANDLORD: Tenant shall hold harmless, indemnify and
defend Landlord, and its employees, agents and contractors, with competent
counsel reasonably satisfactory to Landlord (and Landlord agrees to accept
counsel that any insurer requires be used), from all liability, penalties,
losses, damages, costs, expenses, causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage resulting from (i) any cause or causes whatsoever (other than the willful
misconduct or active negligence of Landlord or Landlord's agents of which
Landlord has had notice and a reasonable time to cure, but which Landlord has
failed to cure) occurring in or about or resulting from an occurrence in or
about the Premises during the Lease Term, (ii) the negligence or willful
misconduct of Tenant or its agents, employees and contractors, wherever the same
may occur, or (iii) an Event of Tenant's Default. The provisions of this P. 10.3
shall survive the expiration or sooner termination of this Lease.
ARTICLE 11
DAMAGE TO PREMISES
11.1 LANDLORD'S DUTY TO RESTORE: If the Premises are damaged by any peril
after the Effective Date, Landlord shall restore the Premises unless the Lease
is terminated by Landlord pursuant to P. 11.2 or by Tenant pursuant toP. 11.3 or
P. 2,4. All insurance proceeds available from the fire and property damage
insurance carried by Landlord pursuant to P. 9.2 shall be paid to and become the
property of Landlord. If this Lease is terminated pursuant to either P. 11.2 or
P. 11.3, then all insurance proceeds available from insurance carried by Tenant
which covers loss to property that is Landlord's property or would become
Landlord's property on termination of this Lease shall be paid to and become the
property of Landlord. If this Lease is not so terminated, then upon receipt of
the insurance proceeds (if the loss is covered by insurance) and the issuance of
all necessary governmental permits, Landlord shall commence and diligently
prosecute to completion the restoration of the Premises, to the extent then
allowed by Law, to substantially the same condition in which the Premises were
immediately prior to such damage. Landlord's obligation to restore shall be
limited to the Premises and interior improvements constructed by Landlord as
they existed as of the Commencement Date, excluding any Tenant's Alterations,
Trade Fixtures and/or personal property constructed or installed by Tenant in
the Premises. Tenant shall forthwith replace or fully repair all Tenant's
Alterations and Trade Fixtures installed by Tenant and existing at the time of
such damage or destruction, and all
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insurance proceeds received by Tenant from the insurance carried by it pursuant
to P. 9.1A(2) shall be used for such purpose.
11.2 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the right to
terminate this Lease in the event any of the following occurs, which right may
be exercised only by delivery to Tenant of a written notice of election to
terminate within 30 days after the date of such damage:
A. Either the Project or the Building is damaged by an Insured
Peril to such an extent that the estimated cost to restore exceeds 33% of the
then actual replacement cost thereof;
B. Either the Project or the Building is damaged by an
Uninsured Peril to such an extent that the estimated cost to restore exceeds 2%
of the then actual replacement cost thereof; provided, however, that Landlord
may not terminate this Lease pursuant to this P. 11.2B if one or more tenants of
the Project agree in writing to pay the amount by which the cost to restore the
damage exceeds such amount and subsequently deposit such amount with Landlord
within 30 days after Landlord has notified Tenant of its election to terminate
this Lease;
C. The Premises are damaged by any peril within 12 months of
the last day of the Lease Term to such an extent that the estimated cost to
restore equals or exceeds an amount equal to six times the Base Monthly Rent
then due; provided, however, that Landlord may not terminate this Lease pursuant
to this P. 11.2C if Tenant, at the time of such damage, has a then valid express
written option to extend the Lease Term and Tenant exercises such option to
extend the Lease Term within 15 days following the date of such damage; or
D. Either the Project or the Building is damaged by any peril
and, because of the Laws then in force, (i) cannot be restored at reasonable
cost to substantially the same condition in which it was prior to such damage,
or (ii) cannot be used for the same use being made thereof before such damage if
restored as required by this Article.
E. As used herein, the following terms shall have the
following meanings: (i) the term "Insured Peril" shall mean a peril actually
insured against for which the insurance proceeds actually received by Landlord
are sufficient (except for any "deductible" amount specified by such insurance)
to restore the Project under then existing building codes to the condition
existing immediately prior to the damage; and (ii) the term "Uninsured Peril"
shall mean any peril which is not an Insured Peril. Notwithstanding the
foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of
the replacement cost of the improvements insured, such peril shall be deemed an
"Uninsured Peril".
11.3 TENANT'S RIGHT TO TERMINATE: If the Premises are damaged by any peril
and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to P. 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within 10 days after Tenant receives from Landlord the estimate of the
time needed to complete such restoration.
A. The Premises are damaged by any peril and, in the
reasonable opinion of Landlord's architect or construction consultant, the
restoration of the Premises cannot be substantially completed within 180 days
after the date of such damage; or
B. The Premises are damaged by any peril within 12 months of
the last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Premises cannot be
substantially completed within 90 days after the date of such damage and such
damage renders unusable more than 30% of the Premises.
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11.4 ABATEMENT OF RENT: In the event of damage to the Premises which does
not result in the termination of this Lease, the Base Monthly Rent and the
Additional Rent shall not be temporarily abated during the period of restoration
commencing on the date of such damage and continuing until the restoration is
completed and possession is delivered to Tenant in proportion to the degree to
which Tenant's use of the Premises is impaired by such damage. Tenant shall not
be entitled to any compensation or damages from Landlord for the loss of
Tenant's business or property or for any inconvenience or annoyance caused by
such damage or restoration. Tenant hereby waives the provisions of California
Civil Code Sections 1932(2) and 1933(4) and the provisions of any similar law
hereinafter enacted. If this Lease is terminated pursuant hereto, this Lease
shall terminate and all of Tenant's obligations hereunder shall cease as of the
date on which the damage event occurred.
ARTICLE 12
CONDEMNATION
12.1 LANDLORD'S TERMINATION RIGHT: Landlord shall have the right to
terminate this Lease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) all or any part of the Premises is
so taken, (ii) more than 10% of the Building Leasable Area is so taken, or (iii)
more than 50% of the Common Area is so taken. Any such right to terminate by
Landlord must be exercised within a reasonable period of time, to be effective
as of the date possession is taken by the condemnor.
12.2 TENANT'S TERMINATION RIGHT: Tenant shall have the right to terminate
this Lease if, as a result of any taking by means of the exercise of the power
of eminent domain (including any voluntary sale or transfer by Landlord to any
condemnor under threat of condemnation), (i) 10% or more of the Premises is so
taken and that part of the Premises that remains cannot be restored within a
reasonable period of time and thereby made reasonably suitable for the continued
operation of the Tenant's business, or (ii) there is a taking affecting the
Common Area and, as a result of such taking, Landlord cannot provide parking
spaces within reasonable walking distance of the Premises equal in number to at
least 80% of the number of spaces allocated to Tenant by P. 2.1, whether by
rearrangement of the remaining parking area in the Common Area (including
construction of multi-deck parking structures or restriping for compact cars
where permitted by Law) or by alternative parking facilities on other land.
Tenant must exercise such right within a reasonable period of time, to be
effective on the date that possession of that portion of the Premises or Common
Area that is condemned is taken by the condemnor.
12.3 RESTORATION AND ABATEMENT OF RENT: If any part of the Premises or the
Common Area is taken by condemnation and this Lease is not terminated, then
Landlord shall restore the remaining portion of the Premises and Common Area and
interior improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or
personal property constructed or installed by Tenant. Thereafter, except in the
case of a temporary taking, as of the date possession is taken the Base Monthly
Rent shall be reduced in the same proportion that the floor area of that part of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.
12.4 TEMPORARY TAKING: If any portion of the Premises is temporarily taken
for one year or less, this Lease shall remain in effect. If any portion of the
Premises is taken by condemnation for a period which exceeds one year or which
extends beyond the natural expiration of the Lease Term and such taking
materially and adversely affects Tenant's ability to use the Premises for the
Permitted Use, then Tenant shall have the right to terminate this Lease,
effective on the date possession is taken by the condemnor.
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12.5 DIVISION OF CONDEMNATION AWARD: Any award made as a result of any
condemnation of the Premises or the Common Area shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the following
so long as the award made to Landlord is not thereby reduced: (i) for the taking
of personal property or Trade Fixture belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, (iii) for loss of
Tenant's goodwill; or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 and the provisions of any similar law hereinafter enacted
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.
ARTICLE 13
DEFAULT AND REMEDIES
13.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):
A. Tenant shall have failed to pay Base Monthly Rent or
Additional Rent when due, and such failure is not cured within 3 business days
after delivery of written notice from Landlord specifying such failure to pay;
or
B. Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Base Monthly Rent
or Additional Rent, and Tenant shall have failed to cure such breach within 30
days after written notice from Landlord specifying the nature of such breach
where such breach could reasonably be cured within said 30 day period, or if
such breach could not be reasonably cured within said 30 day period, Tenant
shall have failed to commence such cure within said 30 day period and thereafter
continue with due diligence to prosecute such cure to completion within such
time period as is reasonably needed or
C. Tenant shall have sublet the Premises or assigned its
interest in the Lease in violation of the provisions contained in Article 14; or
D. Tenant shall have abandoned the Premises or
E. The occurrence of the following: (i) the making by Tenant
of any general arrangements or assignments for the benefit of creditors; (ii)
Tenant becomes a "debtor" as defined in 11 USC ss.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 Section 13.1E
is contrary to any applicable Law, such provision shall be of no force or
effect: or
F. Tenant shall have failed to deliver documents required of
it pursuant to P. 15.4 or P. 15.6 within the time periods specified therein.
13.2 LANDLORD'S REMEDIES: If an Event of Tenant's Default occurs, Landlord
shall have the following remedies, in addition to all other rights and remedies
provided by any Law or otherwise provided in this Lease, to which Landlord may
resort cumulatively or in the alternative:
A. Landlord may keep this Lease in effect and enforce by an
action at Law or in equity all of its rights and remedies under this Lease,
including (i) the right to recover the rent
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and other sums as they become due by appropriate legal action, (ii) the right to
make payments required of Tenant or perform Tenant's obligations and be
reimbursed by Tenant for the cost thereof with interest at the Agreed Interest
Rate from the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant, and (iii) the remedies of injunctive relief and specific performance to
compel Tenant to perform its obligations under this Lease. Notwithstanding
anything contained in this Lease, in the event of a breach of an obligation by
Tenant which results in a condition which poses an imminent danger to safety of
persons or damage to property, an unsightly condition visible from the exterior
of the Building, or a threat to insurance coverage, then if Tenant does not cure
such breach within 5 business days after delivery to it of written notice from
Landlord identifying the breach, Landlord may cure the breach of Tenant and be
reimbursed by Tenant for the cost thereof with interest at the Agreed Interest
Rate from the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant.
B. Landlord may enter the Premises and release them to third
parties for Tenant's account for any period, whether shorter or longer than the
remaining Lease Term. Tenant shall be liable immediately to Landlord for all
reasonable costs Landlord incurs in releasing the Premises, including brokers'
commissions, expenses of altering and preparing the Premises required by the
releasing. Tenant shall pay to Landlord the rent and other sums due under this
Lease on the date the rent is due, less the rent and other sums Landlord
received from any releasing. No act by Landlord allowed by this subparagraph
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. Notwithstanding any releasing without
termination, Landlord may later elect to terminate this Lease because of the
default by Tenant.
C. Landlord may terminate this Lease by giving Tenant written
notice of termination, in which event this Lease shall terminate on the date set
forth for termination in such notice. Any termination under this P. 13.2C shall
not relieve Tenant from its obligation to pay sums then due Landlord or from any
claim against Tenant for damages or rent previously accrued or then accruing. In
no event shall any one or more of the following actions by Landlord, in the
absence of a written election by Landlord to terminate this Lease, constitute a
termination of this Lease: (i) appointment of a receiver or keeper in order to
protect Landlord's interest hereunder; (ii) consent to any subletting of the
Premises or assignment of this Lease by Tenant, whether pursuant to the
provisions hereof or otherwise; or (iii) any other action by Landlord or
Landlord's Agents intended to mitigate the adverse effects of any breach of this
Lease by Tenant, including without limitation any action taken to maintain and
preserve the Premises or any action taken to relet the Premises or any portions
thereof to the extent such actions do not affect a termination of Tenant's right
to possession of the Premises.
D. In the event Tenant breaches this Lease and abandons the
Premises, this Lease shall not terminate unless Landlord gives Tenant written
notice of its election to so terminate this Lease. No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including those
described by P. 13.C, shall constitute a termination of Tenant's right to
possession unless Landlord gives Tenant written notice of termination. Should
Landlord not terminate this Lease by giving Tenant written notice, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4.
E. In the event Landlord terminates this Lease, Landlord shall
be entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section 1951.2,
(i) an interest rate equal to the Agreed Interest Rate shall be used where
permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional
Rent. Such damages shall include:
(1) 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
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proves could be reasonably avoided, computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%); and
(2) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this lease, or which in the ordinary course of things would be likely to
result therefrom, including the following: (i) expenses for cleaning, repairing
or restoring the Premises; (ii) reasonable expenses for altering, remodeling or
otherwise improving the Premises for the purpose of reletting, including
installation of leasehold improvements (whether such installation be funded by a
reduction of rent, direct payment or allowance to a new tenant, or otherwise);
(iii) broker's fees, advertising costs and other expenses of reletting the
Premises; (iv) costs of carrying the Premises, such as taxes, insurance
premiums, utilities and security precautions; (v) expenses in retaking possesion
of the Premises; and (vi) attorneys' fees and court costs incurred by Landlord
in retaking possession of the Premises and in releasing the Premises or
otherwise incurred as a result of Tenant's default.
F. Nothing in this P. 13.2 shall limit Landlord's right to
indemnification from Tenant as provided in P. 7.2 and P. 10.3. Any notice given
by Landlord in order to satisfy the requirements of P. 13.1A or P. 13.1B above
shall also satisfy the notice requirement of California Code of Civil Procedure
Section 1161 regarding unlawful detainer proceedings provided such notices
comply in form content and manner of service with applicable Law.
13.3 WAIVER: One party's consent to or approval of any act by the other
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right to
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.
13.4 LIMITATION ON EXERCISE OF RIGHTS: At any time that an Event of
Tenant's Default has occurred and remains uncured, (i) it shall not be
unreasonable for Landlord to deny or withold any consent or approval requested
of it by Tenant which Landlord would otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend, right to terminate this Lease, or
other right granted to it by this Lease which would otherwise be available to
it.
13.5 WAIVER BY TENANT OF CERTAIN REMEDIES: Tenant waives the provisions of
Sections 1932(1), 1941 and 1942 of the California Civil Code and any similar or
successor law regarding Tenant's right to terminate this Lease or to make
repairs and deduct the expenses of such repairs from the rent due under this
Lease. Tenant hereby waives any right of redemption or relief from forfeiture
under the laws of the State of California, or under any other present or future
law, including the provisions of Sections 1174 and 1179 of the California Code
of Civil Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFER BY TENANT: The following provisions shall apply to any
assignment, subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively referred to
in this P. 14.1 as "Tenant):
A. Tenant shall not do any of the following (collectively
referred to herein as a "Transfer"), whether voluntarily, involuntarily or by
operation of law, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed: (i) sublet all or
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any part of the Premises or allow it to be sublet, occupied or used by any
person or entity other than Tenant; (ii) assign its interest in this Lease;
(iii) mortgage or encumber the Lease (or otherwise use the Lease as a security
device) in any manner; or (iv) materially amend or modify an assignment,
sublease or other transfer that has been previously approved by Landlord. Tenant
shall reimburse Landlord for all reasonable costs and attorneys' fees incurred
by Landlord in connection with the evaluation, processing, and/or documentation
of any requested Transfer, whether or not Landlord's consent is granted, in an
amount not to exceed $1,000.00 per Transfer unless Tenant challenges Landlord's
decision. Landlord's reasonable costs shall include the cost of any review or
investigation performed by Landlord or consultant acting on Landlord's behalf of
(i) Hazardous Materials (as defined in Section 7.2E of this Lease) used, stored,
released, or disposed of by the potential Subtenant or Assignee, and/or (ii)
violations of Hazardous Materials Law (as defined in Section 7.2E of this lease)
by the Tenant or the propsed Subtenant or Assignee. Any Transfer so approved by
Landlord shall not be effective until Tenant has delivered to Landlord an
executed counterpart of the document evidencing the Transfer which (i) is in a
form reasonably approved by Landlord, (ii) contains the same terms and
conditions as stated in Tenant's notice given to Landlord pursuant to P. 14.1B,
and (iii) in the case of an assignment of the Lease, contains the agreement of
the proposed transferee to assume all obligations of Tenant under this Lease
arising after the effective date of such Transfer and to remain jointly and
severally liable therefor with Tenant. Any attempted Transfer without Landlord's
consent shall constitute an Event of Tenant's Default and shall be voidable at
Landlord's option. Landlord's consent to any one Transfer shall not constitute a
waiver of the provisions of this P. 14.1 as to any subsequent Transfer or a
consent to any subsequent Transfer. No Transfer, even with the consent of
Landlord, shall relieve Tenant of its personal and primary obligation to pay the
rent and to perform all of the other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any person shall not be
deemed to be a waiver by Landlord of any provision of this Lease nor to be a
consent to any Transfer.
B. At least 15 days before a proposed Transfer is to become
effective, Tenant shall give Landlord written notice of the proposed terms of
such Transfer and request Landlord's approval, which notice shall include the
following: (i) the name and legal composition of the proposed transferee; (ii) a
current financial statement of the transferee, financial statements of the
transferee covering the preceding three years if the same exist, and (if
available) an audited financial statement of the transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of which statements are prepared in accordance with generally accepted
accounting principles; (iii) the nature of the proposed transferee's business to
be carried on in the Premises; (iv) all consideration to be given on account of
the Transfer; (v) a current financial statement of Tenant; and (vi) an
accurately filled out response to Landlord's standard Hazardous Materials
Questionnaire. Tenant shall provide to Landlord such other information as may be
reasonably requested by Landlord within seven days after Landlord's receipt of
such notice from Tenant. Landlord shall maintain all such information in strict
confidence. Landlord shall respond in writing to Tenant's request for Landlord's
consent to a Transfer within the later of (i) 10 days of receipt of such request
together with the required accompanying documentation, or (ii) five days after
Landlord's receipt of all information which Landlord reasonably requests within
five days after it receives Tenant's first notice regarding the Transfer in
question. If Landlord fails to respond in writing within said period, Landlord
will be deemed to have withheld consent to such Transfer. Tenant shall
immediately notify Landlord of any material modification to the proposed terms
of such Transfer.
C. In the event that Tenant seeks to make any Transfer for the
balance of the Lease Term, Landlord shall have the right to terminate this Lease
or, in the case of a sublease of less than all of the Premises, terminate this
Lease as to that part of the Premises proposed to be so sublet, either (i) on
the condition that the proposed transferee immediately enter into a direct lease
of the Premises with Landlord (or, in the case of a partial sublease, a lease
for the portion proposed to be so sublet) on the same terms and conditions
contained in Tenant's notice, or (ii) so that Landlord is thereafter free to
lease the Premises (or, in the case of a partial sublease, the portion proposed
to be so sublet) to whomever it pleases on whatever terms are acceptable to
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Landlord unless, in either case, Tenant, within 10 days after receipt of
Landlord's election to terminate, gives Landlord written notice withdrawing its
proposal to assign or sublet. In the event Landlord elects to so terminate this
Lease, then (i) if such termination is conditioned upon the execution of a lease
between Landlord and the proposed transferee, Tenant's obligation under this
Lease shall not be terminated until such transferee executes a new lease with
Landlord, enters into possession and commences the payment of rent, and (ii) if
Landlord elects simply to terminate this Lease (or, in the case of a partial
sublease, terminate this Lease as to the portion to be so sublet), the Lease
shall so terminate in its entirety (or as to the space to be so sublet on the
proposed effective date of such Transfer, as specified in Tenant's notice
thereof, or, if no effective date is specifically stated in such notice, 30 days
after Landlord has notified Tenant in writing of such election. Upon such
termination, Tenant shall be released from any further obligation under this
Lease if it is terminated in its entirety, or shall be released from any further
obligation under the Lease with respect to the space proposed to be sublet in
the case of a proposed partial sublease. In the case of a partial termination of
the Lease, the Base Monthly Rent and Tenant's share shall be reduced to an
amount which bears the same relationship to the original amount thereof as the
area of that part of the Premises which remains subject to the Lease bears to
the original area of the Premises. Landlord and Tenant shall execute a
cancellation and release with respect to the Lease to effect such termination.
D. If Landlord consent to a transfer proposed by Tenant,
Tenant may enter into such Transfer, and if Tenant does so, the following shall
apply:
(1) Tenant shall not be released of its liability for the
performance of all of its obligations under the Lease.
(2) If Tenant assigns its interest in this Lease, then Tenant
shall pay to Landlord 50% of all Subrent (as defined in P. 14.1D(5)) received by
Tenant over and above (i) the assignee's agreement to assume the obligations of
Tenant under this Lease, and (ii) all Permitted Transfer Costs related to such
assignment. In the case of assignment, the amount of Subrent owned to Landlord
shall be paid to Landlord on the same basis, whether periodic or in lump sum,
that such Subrent is paid to Tenant by the assignee.
(3) If Tenant sublets any part of the Premises, then with
respect to the space so sublease, Tenant shall pay to Landlord 50% of the
positive difference, if any, between (i) all Subrent paid by the subtenant to
Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable
to the space sublet and all Permitted Transfer Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis, whether periodic or in
lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating
Landlord's share of any periodic payments, all Permitted Transfer Costs shall be
first recovered by Tenant.
(4) Tenant's obligations under this P. 14.1D shall survive any
Transfer, and Tenant's failure to perform its obligations hereunder shall be an
Event of Tenant's Default. At the time Tenant makes any payment to Landlord
required by this P. 14.1D, Tenant shall deliver an itemized statement of the
method by which the amount to which Landlord is entitled was calculated,
certified by Tenant as true and correct. Landlord shall have the right at
reasonable intervals to inspect Tenant's books and records relating to the
payments due hereunder. Upon request therefore, Tenant shall deliver to Landlord
copies of all bills, invoices or other documents upon which its calculations are
based. Landlord may condition its approval of any Transfer upon obtaining a
certification from both Tenant and the proposed transferee of all Subrent and
other amounts that are to be paid to Tenant in connection with such Transfer.
(5) As used in this P. 14.1D, the term "Subrent" shall mean
any consideration of any kind received, or to be received, by Tenant as a result
of the Transfer, if such sums are related to Tenant's interest in this Lease or
in the Premises, including payments from or on behalf of the transferee (in
excess of the book value thereof) for Tenant's assets, fixtures, leasehold
improvements, inventory, accounts, goodwill, equipment, furniture, and general
intangibles. As
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used in this P. 14.1D, the term "Permitted Transfer Costs" shall mean (i) all
reasonable leasing commissions paid to third parties not affiliated with Tenant
in order to obtain the Transfer in question, (ii) all reasonable attorneys' and
consultants fees incurred by Tenant with respect to the Transfer in question,
(iii) all marketing costs, and (iv) all costs of preparing the Premises for the
transferee.
E. If Tenant is a corporation, the following shall be deemed a
voluntary assignment of Tenant's interest in this Lease: (i) any dissolution,
merger, consolidation, or other reorganization of or affecting Tenant, whether
or not Tenant is the surviving corporation; and (ii) if the capital stock of
Tenant is not publicly traded, the sale or transfer to one person or entity (or
to any group of related persons or entities) stock possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. If Tenant is a
partnership, any withdrawal or substitution (whether voluntary, involuntary or
by operation of law, and whether occurring at one time or over a period of time)
or any partner owning 25% or more(cumulatively) of any interest in the capital
or profits of the partnership, or the dissolution of the partnership, shall be
deemed a voluntary assignment of Tenant's interest in this Lease.
F. Notwithstanding anything contained in P. 14.1, so long as
Tenant otherwise complies with the provisions of P. 14.1, Tenant may enter into
any of the following transfers (a "Permitted Transfer") without Landlord's prior
written consent, and Landlord shall not be entitled to terminate the Lease
pursuant to P. 14.1C or to receive any part of any subrent resulting therefrom
that would otherwise be due it pursuant to P. 14.1D.
(1) Tenant may sublease all or part of the Premises
or assign its interest in this Lease to any corporation which controls, is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%;
(2) Tenant may assign its interest in the Lease to a
corporation which results from a merger, consolidation or other reorganization
whether or not Tenant is the surviving corporation, so long as the surviving
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction; and
(3) Tenant may assign this Lease to a corporation
which purchases or otherwise acquires all or substantially all of the assets of
Tenant, so long as such acquiring corporation has a net worth at the time of
such assignment that is equal to or greater than the net worth of Tenant
immediately prior to such transaction.
14.2 TRANSFER BY LANDLORD: Landlord and its successors in interest shall
have the right to transfer their interest in this Lease and the Project at any
time and to any person or entity. In the event of any such transfer, the
Landlord originally named herein (and, in the case of any subsequent transfer,
the transferror) from the date of such transfer, shall be automatically
relieved, without any further act by any person or entity, of all liability for
the performance of the obligations of the Landlord hereunder which may accrue
after the date of such transfer; provided that the transferee of Landlord's
interest shall have assumed and agreed to observe and perform, in writing, all
of Landlord's obligations under this Lease for the benefit of Tenant. After the
Date of any such transfer, the term "Landlord" as used herein shall mean the
transferee of such interest in the Premises.
ARTICLE 15
GENERAL PROVISIONS
15.1 LANDLORD'S RIGHT TO ENTER: Landlord and its agents may enter the
Premises at any reasonable time after giving at least 24 hours' prior notice to
Tenant (and immediately in the case of emergency) for the purpose of: (i)
inspecting the same; (ii) posting notices of non-
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responsibility; (iii) supplying any service to be provided by Landlord to
Tenant; (iv) showing the Premises to prospective purchasers, mortgagees or
during the last four (4) months of the Term, tenants; (v) making necessary
alterations, additions or repairs; (vi) performing Tenant's obligations when
Tenant has failed to do so after written notice from Landlord; (vii) placing
upon the Premises ordinary "for lease" signs during the last four (4) months of
the Term, or "for sale" signs; and (viii) responding to an emergency. Landlord
shall have the right to use any and all means Landlord may deem necessary and
proper to enter the Premises in an emergency. Any entry into the Premises
obtained by Landlord in accordance with this P. 15.1 shall not be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises.
15.2 SURRENDER OF THE PREMISES: Upon the expiration or sooner termination
of this Lease, Tenant shall vacate and surrender the Premises to Landlord in the
same condition as existed at the Commencement Date, except for (i) reasonable
wear and tear, (ii) damage caused by any peril or condemnation, and (iii)
contamination by Hazardous Materials for which Tenant is not responsible
pursuant to P. 7.2A or P. 7.2B. In this regard, normal wear and tear shall be
construed to mean wear and tear caused to the Premises by the natural aging
process which occurs in spite of prudent application of the best but reasonable
standards for maintenance, repair and janitorial practices, and does not include
items of neglected or deferred maintenance. In any event, Tenant shall cause the
following to be done prior to the expiration or the sooner termination of this
Lease: (i) all interior walls shall be cleaned (ii) all tiled floors shall be
cleaned and waxed; (iii) all carpets shall be cleaned and shampooed; (iv) all
broken, marred, stained or nonconforming acoustical ceiling tiles shall be
replaced; (v) all windows shall be washed; (vi) the HVAC system shall be
serviced by a reputable and licensed service firm and left in good operating
condition and repair as so certified by such firm; and (vii) the plumbing and
electrical systems and lighting shall be placed in good order and repair
(including replacement of any burned out, discolored or broken light bulbs,
ballasts, or lenses). If Landlord so requests not less than 90 days prior to the
expiration of this Lease, Tenant shall, prior to the expiration or sooner
termination of this Lease, (i) remove any Tenant's Alterations which Tenant is
required to remove pursuant to P. 5.2 and repair all damage caused by such
removal, and (ii) return the Premises or any part thereof to its original
configuration existing as of the time the Premises were delivered to Tenant
except to the extent of alterations previously approved by Landlord. If the
Premises are not so surrendered at the termination of this Lease, Tenant shall
be liable to Landlord for all costs incurred by Landlord in returning the
Premises to required condition, plus interest on all costs incurred at the
Agreed Interest Rate. Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in so surrendering the Premises, including,
without limitation, any claims made by any succeeding tenant or losses to
Landlord due to lost opportunities to lease to succeeding tenants.
15.3 HOLDING OVER: This Lease shall terminate without further notice at the
expiration of the Lease Term. Any holding over by Tenant after expiration of the
Lease Term shall not constitute a renewal or extension of the Lease or give
Tenant any rights in or to the Premises except as expressly provided in this
Lease. Any holding over after such expiration with the written consent of
Landlord shall be construed to be a tenancy from month to month on the same
terms and conditions herein specified insofar as applicable except that Base
Monthly Rent shall be increased to an amount equal to 150% of the Base Monthly
Rent payable during the last full calendar month of the Lease Term.
15.4 SUBORDINATION: The following provisions shall govern the relationship
of this Lease to any Security Instrument:
A. The Lease is subject and subordinate to all Security
Instruments existing as of the Effective Date. However, if any Lender so
requires, this Lease shall become prior and superior to any such Security
Instrument. Landlord represents and warrants to Tenant that to Landlord's
knowledge each such Security Instrument is in full force and effect without
default. At Tenant's request, Landlord shall use its reasonable efforts to
obtain a non-disturbance agreement from the
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holder of any Security Instrument on the holders standard form. Tenant shall pay
the cost, if any, in obtaining such agreement.
B. At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and performs
all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.
C. Tenant shall upon request execute any document or
instrument reasonably required by any Lender to make this Lease either prior or
subordinate to a Security Instrument, which may include such other matters as
the Lender customarily and reasonably requires in connection with such
agreements, including provisions that the Lender not be liable for (i) the
return of any security deposit unless the Lender receives it from Landlord, and
(ii) any defaults on the part of Landlord occurring prior to the time the Lender
takes possession of the Project in connection with the enforcement of its
Security Instrument. Tenant's failure to execute any such document or instrument
with 15 days after written demand therefore shall constitute an Event of
Tenant's Default. Tenant approves as reasonable the form of subordination
agreement attached to this Lease as EXHIBIT G.
15.5 MORTGAGEE PROTECTION AND ATTORNMENT: In the event of any default on
the part of the Landlord, Tenant will use reasonable efforts to give notice by
registered mail to any Lender whose name and address has been provided to Tenant
and shall offer such Lender a reasonable opportunity to cure the default,
including time to obtain possession of the Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings, if such should prove
necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises
at any foreclosure sale or private sale conducted pursuant to any Security
Instrument encumbering the Premises, or to any grantee or transferee designated
in any deed given in lieu of foreclosure.
15.6 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS: At all times during
the Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party within 15 days following
delivery of such request an estoppel certificate: (i) certifying that this Lease
is unmodified and in full force and effect or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect, (ii) stating the date to which the rent and other charges are
paid in advance, if any, (iii) acknowledging that there are not, to the
certifying party's knowledge, any uncured defaults on the part of any party
hereunder or, if there are uncured defaults, specifying the nature of such
defaults, and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an estoppel
certificate within 15 days after delivery of a request therefore shall be a
conclusive admission that, as of the date of the request for such statement: (i)
this Lease is unmodified except as may be represented by the requesting party in
said request and is in full force and effect, (ii) there are no uncured defaults
in the requesting party's performance, and (iii) no rent has been paid more than
30 days in advance. At any time during the Lease Term Tenant shall, upon 15
days' prior written notice from Landlord, provide Tenant's most recent financial
statement and financial statements covering the 24 month period prior to the
date of such most recent financial statement to any existing Lender or to any
potential Lender or buyer of the Premises. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant.
15.7 REASONABLE CONSENT: Whenever any party's approval or consent is
required by this Lease before an action may be taken by the other party, such
approval or consent shall not be unreasonably withheld or delayed.
15.8 NOTICES: Any notice required or desired to be given regarding this
Lease shall be in writing and may be given by personal delivery, by facsimile
telecopy, by courier service, or by
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mail. A notice shall be deemed to have been given (i) on the third business day
after mailing if such notice was deposited in the United States mail, certified
or registered, postage prepaid, addressed to the party to be served at its
Address for Notices specified in SECTION Q or SECTION R of the Summary (as
applicable), (ii) when delivered if given by personal delivery, and (iii) in all
other cases when actually received at the party's Address for Notices. Either
party may change its address by giving notice of the same in accordance with
this P. 15.8, provided, however, that any address to which notices may be sent
must be a California address.
15.9 ATTORNEYS' FEES: In the event either Landlord or Tenant shall bring
any action or legal proceeding for an alleged breach of any provision of this
Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect
or establish any term or covenant of this Lease, the prevailing party shall be
entitled to recover as a part of such action or proceeding, or in a separate
action brought for that purpose, reasonable attorneys' fee, court costs, and
experts' fees as may be fixed by the court.
15.10 CORPORATE AUTHORITY: If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of Tenant represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of such
corporation in accordance with the by-laws of such corporation (or partnership
in accordance with the partnership agreement of such partnership) and that this
Lease is binding upon such corporation (or partnership) in accordance with its
terms. Each of the persons executing this Lease on behalf of a corporation does
hereby covenant and warrant that the party for whom it is executing this Lease
is a duly authorized and existing corporation, that it is qualified to do
business in California, and that the corporation has full right and authority to
enter into this Lease.
15.11 MISCELLANEOUS: Should any provision of this Lease prove to be invalid
or illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof. Any
executed copy of this Lease shall be deemed an original for all purposes. This
Lease shall, subject to the provisions regarding assignment, apply to and bind
the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context
implies. If Tenant consists of more than one person or entity, then all members
of Tenant shall be jointly and severally liable hereunder. This Lease shall be
construed and enforced in accordance with the laws of the State of California.
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant. When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint
venture, and the singular includes the plural. The terms "shall", "will" and
"agree" are mandatory. The term "may" is permissive. When a party is required to
do something by this Lease, it shall do so at its sole cost and expense without
right of reimbursement from the other party unless a provision of this Lease
expressly requires reimbursement. Landlord and Tenant agree that (i) the gross
leasable area of the Premises includes any atriums, depressed loading docks,
covered entrances or egresses, and covered loading areas, (ii) each has had an
opportunity to determine to its satisfaction the actual area of the Project and
the Premises, (iii) all measurements of area contained in this Lease are
conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more or
less than the amount of area reflected in this Lease, and (iv) any such
subsequent determination that the area is more or less than shown in this Lease
other than a result of a reconstruction of the Premises following a
damage/destruction or condemnation affecting the Premises shall not result in a
change in any of the computations of rent, improvement allowances, or other
matters described in this Lease where area is a factor. Where a party hereto is
obligated not to perform any act, such party is also obligated to restrain any
others within its control from performing said act, including the Agents of such
party.
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Landlord shall not become or be deemed a partner or a joint venturer with Tenant
by reason of the provisions of this Lease.
15.12 TERMINATION BY EXERCISE OF RIGHT: If this Lease is terminated
pursuant to its terms by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to terminate is properly exercised
(unless another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination shall prevail), the rent
and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive termination. This P. 15.12 does not apply to a termination of
this Lease by Landlord as a result of an Event of Tenant's Default.
15.13 BROKERAGE COMMISSIONS: Each party hereto (i) represents and warrants
to the other that it has not had any dealings with any real estate brokers,
leasing agents or salesmen, or incurred any obligations for the payment of real
estate brokerage commissions or finder's fees which would be earned or due and
payable by reason of the execution of this Lease, other than to the Retained
Real Estate Brokers described in SECTION S of the Summary, and (ii) agrees to
indemnify, defend, and hold harmless the other party from any claim for any such
commission or fees which result from the actions of the indemnifying party.
Landlord shall be responsible for the payment of any commission owed to the
Retained Real Estate Brokers.
15.14 FORCE MAJEURE: Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder except the obligation of Tenant to pay rent or any other sums due
hereunder.
15.15 ENTIRE AGREEMENT: This Lease constitutes the entire agreement between
the parties, and there are no binding agreements or representations between the
parties except as expressed herein. Tenant acknowledges that neither Landlord
nor Landlord's Agents has made any legally binding representation or warranty as
to any matter except those expressly set forth herein, including any warranty as
to (i) whether the Premises may be used for Tenant's intended use under existing
Law, (ii) the suitability of the Premises or the Project for the conduct of
Tenant's business, or (iii) the condition of any improvements. There are no oral
agreements between landlord and Tenant affecting this Lease, and this Lease
supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease. This instrument shall not be legally binding until it is executed by both
Landlord and Tenant. No subsequent change or addition to this lease shall be
binding unless in writing and signed by Landlord and Tenant.
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IN WITHNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date.
LANDLORD:
ORCHARD INVESTMENT COMPANY NO. 901
a California general partnership
By: NELO, a California general partnership
By: New England Mutual Life Insurance Co.
a Massachusetts corporation,
a general partnership
By: /s/ Thomas J. Lunny
Date: August 13, 1996
TENANT:
Clarify Inc.
a Delaware corporation
By: /s/ David A Stamm
Title: President
Date: August 9, 1996
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FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM is dated for reference purposes as August 8, 1996, and
is made a part of that Lease Agreement (the "Lease") dated August 8, 1996, by
and betwen ORCHARD INVESTMENT COMPANY NUMBER 901, a California general
partnership ("Landlord") and CLARIFY INC. a Delaware corporation ("Tenant")
affecting certain real property commonly known as 2125 O'Nel Drive, San Jose,
California, with reference to the following facts:
1. OPTION TO EXTEND LEASE TERM: Landlord hereby grants to Tenant one option
to extend the Lease Term for a five (5) year term on the following terms and
conditions:
A. Tenant must give Landlord notice in writing of its exercise of the
option in question no earlier than one hunderd eighty (180) days and no later
than one hundred twenty (120) days before the date the Lease Term would end but
for said exercise.
B. Tenant may not extend the Lease Term pursuant to any option granted
by this paragraph if Tenant is materially in default beyond any applicable cure
period as of the date of exercise of the option in question or as of the date
this Lease would have been terminated but for said exercise.
C. All terms and conditions of this Lease shall apply during the option
period, except that the Base Monthly Rent for the option period shall be
determined as provided in Paragraph D.
D. The Base Monthly Rent for the Option Period shall be greater of (i)
one hundred percent (100%) of the Base Monthly Rent due the last month of the
previous Lease Term, or (ii) one-hundred percent (100%) of the then fair market
monthly rent determined as of the commencement of the option period in question
based upon like buildings with like improvements in the San Jose area within the
boundaries of Highways 237, 101 and 880. If the parties are unable to agree upon
the fair market monthly rent for the Premises for the option period in question
at least seventy-five (75) days prior to the commencement of the option period
in question, then the fair market monthly rent shall be determined by appraisal
conducted pursuant to subparapgraph E.
E. In the event it becomes necessary to determine by appraisal the fair
market rent of the Premises for the purpose of establishing the Base Monthly
Rent during the Option Period, then such fair market monthly rent shall be
determined by three (3) real estate appraiser, all of whom shall be members of
the American Institue of Real Estate Appraisers with not less than five (5)
years experience appraising real property (other than residential or
agricultural property) located in Santa Clara County, California, in accordance
with the following procedures:
(1) The party demanding an appraisal (the "Notifying Party")
shall notify the other party (the "Non-Notifying Party") thereof by delivering a
written demand for appraisal, which demand, to be effective, must give the name,
address, and qualifications of an appraiser selected by the Notifying Party.
Within ten (10) days of receipt of said demand, the Non-notifying Party shall
select its appriaser and notify the Notifying Party, in writing, of the name,
address, and qualifications of an appraiser selected by it. Failure by the
Non-Notifying Party to select a qualified appraiser within said ten (10) day
period shall be deemed a waiver of its right to select a second appraiser on its
own behalf and the Notifying Party shall select a second appraiser on behalf of
the Non-Notifying Party within five (5) days after the expiration of said ten
(10) day period. Within ten (10) days from the date the second appraiser shall
have been appointed, the two (2) appraisers so selected shall appoint a third
appraiser. If the two appraisers fail to select a third qualified appraiser, the
third appraiser shall be selected by the American Arbitrations Association or if
it shall refuse to perform this function, then at the request of either Landlord
or Tenant, such third appraiser shall be promptly appointed by the then
Presiding Judge of the Superior Court of the State of California for the County
of Santa Clara.
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(2) The three (3) appraisers so selected shall meet in San
Jose, California, not later than twenty (20) days following the selection of the
third appriaser. At said meeting the appraisers so selected shall attempt to
determine the fair market monthly rent of the Premises for the option period in
question (including the timing and amount of periodic increases).
(3) If the appraisers so selected are unable to complete their
determinations in one meeting, they may continue to consult at such times as
they deem necessary for a fifteen (15) day period from the date of the first
meeting, in an attempt to have at least two (2) of them agree. If, at the
initial meeting or at any time during said fifteen (15) day period, two (2) or
more of the appraisers so selected agree on the fair market rent of the Leased
Premises, such agreement shall be determinative and binding on the parties
hereto, and the agreeing appraisers shall, in simple letter form executed by the
agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set
by such agreement.
(4) If two (2) or more appraisers do not so agree within said
fifteen (15) day period, then each appraiser shall, within five (5) days after
the expiration of said fifteen (15) day period, submit his independent appraisal
in simple letter form to Landlord and Tenant stating his determination of the
fair market rent of the Premises for the option period in question. The parties
shall then determine the fair market rent for the Premises by determining the
average of the fair market rent set by each of the appraisers. However, if the
lowest appraisal is less than eighty-five percent (85%) of the middle appraisal
then such lowest appraisal shall be disregarded and/or if the highest appraisal
is greater than one hundred fifiteen percent (115%) of the middle appraisal then
such highest appraisal shall be disregarded. If the fair market rent set by any
appraisal is so disregarded, then the average shall be determined by computing
the average set by the other appraisals that have not been disregarded.
(5) Nothing contained herein shall prevent Landlord and Tenant
from jointly selecting a single appraiser to determine the fair market rent of
the Premises, in which event the determination of such appraisal shall be
conclusively deemed the fair market rent of the Premises.
(6) Each party shall bear the fees and expenses of the
appraiser selected by or for it, and the fees and expenses of the third
appraiser (or the joint appraiser if one joint appraiser is used) shall be borne
fifty percent (50%) by Landlord and fifty percent (50%) by Tenant.
2. EARLY OCCUPANCY:
A. As consideration for Tenant's performance of all obligations to be
performed by Tenant under the Lease, and upon receipt of (i) the first month's
Base Monthly Rent and Security Deposit totaling $281,050.00, and (ii) a
certificate of insurance as provided by Article 9.1C of the Lease, Landlord
shall permit Tenant to enter and use the Premises commencing upon full Lease
execution until the Commencement Date (the "Early Occupancy Period"). Such
occupancy during the Early Occupancy Period shall be subject to all of the
terms, covenants and conditions of the Lease provided, however, that the rent
and Additional Rent payable during the Early Occupancy Period shall be waived.
Tenant's Early Occupancy shall not advance the Commencement Date.
B. In the event either party shall bring any action or legal proceeding
for damages for alleged breach of any provision of this agreement, to recover
rent, to terminate tenancy of the Premises, or to enforce, protect or establish
any term or covenant of this agreement or the Lease or right of remedy of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceeding, reasonable attorney's fees and court costs as may be fixed
by the court or jury.
C. In consideration of executing this Early Occupancy Agreement, Tenant
agrees to indemnify and save Landlord harmless of and from any and all
liability, damage, expense, cause of action, suits or claims or judgments
resulting from injury to person or property arising from the
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use of the Premises by Tenant during the Early Occupancy Period, including loss
or damage to Tenant, its equipment, materials or supplies.
D. Tenant agrees to cooperate with construction personnel completing
the Interior Improvements in the Premises and not cause any delay in the
completion of these improvements.
E. During the Early Occupancy Period, Tenant shall pay fifty percent
(50%) of all utility services, including but not limited to gas, electric, water
and trash.
3. TENANT IMPROVEMENT ALLOWANCE:
A. The term "Tenant Improvement Allowance" shall mean the maximum
amount Landlord is required to spend toward the payment of Interior Improvement
Costs for all Interior Improvements constructed in the Premises, which amount is
$803,000.00 total (i.e., $8.00 per square foot for Tenant's Gross Leasable Area
within the entire Premises).
B. Landlord shall not be obligated to provide future use of any Tenant
Improvement Allowance not spent within eight (8) months after the effective Date
of this Lease.
4. ADJUSTMENTS TO THE BASE MONTHLY RENT: No credit in the Base Monthly Rent
shall be made if any of the Tenant Improvement Allowance is not spent.
5. WARRANTY OF EXISTING CONDITION:
A. Landlord shall provide the Premises to Tenant with all mechanical,
electrical, plumbing, HVAC, and roof systems in good working condition as of the
Commencement Date.
B. Additionally, subject to Tenant's obligation to maintain such
systems in accordance with the Lease, Landlord agrees to repair or replace any
failure in said systems which may occur during the first two (2) months of the
Lease Term.
C. Additionally, Landlord, at Landlord's sole cost and reasonable
judgment, shall trim the trees around the Premises to allow more light through
the first and second floor windows.
6. SIGNAGE: Tenant shall have the right to install its name on the existing
street monument sign and glass entrance to the Premises. Additionally, subject
to (i) Landlord's prior written approval of the specifics, which shall not be
unreasonably withheld, and (ii) approval by the appropriate local governing
authority, Tenant may place its name on the freeway side of the Building.
7. DELIVERY AND ACCEPTANCE OF POSSESSION: If Early Occupancy (as provided
for in Paragraph 2 of the First Addendum To Lease) of Premises is not delivered
to Tenant within 60 days after the Effective Date, Tenant shall have the right
to terminate this Lease by giving written notice of termination to Landlord
within ten days after such 60 day period. If the Lease is terminated pursuant to
the foregoing sentence, then Landlord shall immediately refund to Tenant all
prepaid rent, security deposits and all other sums theretofore paid by Tenant to
Landlord under this Lease.
8. HAZARDOUS MATERIALS: Landlord represents without prior investigation
that it has no actual knowledge of any Hazrdous Materials on or under the
Premises in violation of any Hazardous Materials Law other than as disclosed in
the "Updated Environmental Site Assessment for Orchard Properties Project 901"
report dated April 1995 by Applied Geosciences, and the "Follow-up to
Environmental Site Assessment for Orchard Properties #901 San Jose, California"
report by ATC Environmental Inc. dated June 12, 1996, both of which Tenant has
been provided copies.
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9. COMMON OPERATING EXPENSES DEFINED: Notwithstanding anything to the
contrary in the Lease, Common Operating Expenses (and any terms of similar
meaning in the Lease) shall not include, and Tenant shall have no liability for,
the following expense items:
a. The construction costs, purchase price or depreciation of the
Building or Project.
b. Costs incurred for the repair, maintenance or replacement of the
structural components of the Building or Project, including, without limitation
the structural portions of the beams, columns, foundations, footings, load
bearing and exterior walls, structural slabs, and the roof, but excluding
utility systems within such structural components and excluding the roof
membrane.
c. Costs incurred for the repair, maintenance or replacement of the
Building or Project, or any portion thereof, to the extent: (a) of the proceeds
of insurance which Landlord is required to maintain under the Lease or actually
maintains (whichever is greater), (b) of any reimbursement which Landlord is
entitled to receive under any warranties or from any third party (other than on
account of a tenant's proportionate share of Common Operating Expenses), (c)
caused by the active neglect or misconduct of Landlord or Landlord's Agents; or
(d) caused by other tenants or occupants of the Project or their Agents.
d. Rentals and other payments by Landlord under any ground lease or
other lease underlying this Lease, and interest, principal, points, penalties
and fees on any Security Instrument encumbering all or any portion of the
Building or Project.
e. Expenses and penalties (including, without limitation, attorneys
fees) incurred due to Landlord's violation of any lease, Security Instrument,
Law or Private Restriction.
f. Leasing commissions, attorney's fees, tenant improvement costs and
other costs and expenses incurred in connection with the leasing, or the
improvement for leasing, of any premises.
g. Any cost incurred in furnishing items or services not made available
to Tenant.
h. Advertising, marketing, media and promotional expenditures regarding
the Building or Project, and costs of signs in or on the Project or Building
identifying the owner, lender or any contractor thereof.
i. Salaries, wages and benefits paid or provided to persons not
employed full-time in the management and operation of the Project; costs of
automobiles and travel expenses; professional, civic or recreational membershp;
costs of seminars, conventions, educational programs and the like; charitable
and political contributions; and any other administrative cost or expense not
directly related to the management and operation of the Project.
j. No cost item shall be included more than once or allocated under
more than one expense category.
10. REAL PROPERTY TAXES DEFINED: Notwithstanding anything to the contrary
to the Lease, "Real Property Taxes" shall not include, and Tenant shall have no
liability for, the following charges:
(1) Interest or penalties imposed as a result of Landlord's failure to
pay taxes or assessments when due;
(2) Landlord's income, transfer, gift, estate, succession, franchise or
excess profits tax, or fees, taxes or assessments imposed on Landlord for the
privilege or right to conduct its business
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in general (including, for example, fees for Landlord's business license) rather
than for a permit or license to operate the Project or any equipment or facility
therein in particular.
All assessments which can be paid by Landlord in installments shall be included
as a reimbursable expense item as if paid over the maximum number of
installments permitted, regardless of when Landlord actually pays such
assessments. Real Property Taxes shall be prorated for the portion of the year
in which the Lease Term commences or ends.
LANDLORD: TENANT:
ORCHARD INVESTMENT COMPANY NO. 901 Clarify Inc.
a California general partnership a Delaware corporation
By: NELO, a California general partnership By: /s/ David A. Stamm
---------------------
By: New England Mutual Life Insurance Co. Title: President
a Massachusetts corporation,
a general partnership
By: /s/Thomas J. Lunny Date: August 9, 1996
------------------
Date: August 13, 1996
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EXHIBIT A
SITE PLAN
All that certain real property situate in the City of San Jose, County of
Santa Clara, State of California, described as follows:
Parcels 1, 2 and 3 as shown on that certain Parcel Map filed for record
July 25, 1984 in Book 532 of Maps at pages 5, 6 and 7 Santa Clara County
Records.
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EXHIBIT B
THIS IMPROVEMENT AGREEMENT is made part of that Lease dated August 8, 1996,
(the "Lease") by and between ORCHARD INVESTMENT COMPANY NUMBER 901 ("Landlord"),
and CLARIFY INC. ("Tenant"). Landlord and Tenant agree that the following terms
are part of the Lease:
1. PURPOSE OF IMPROVEMENT AGREEMENT: The purpose of this Improvement
Agreement is to set forth the rights and obligations of Landlord and Tenant with
respect to the construction of Interior Improvements within the Premises prior
to the Commencement Date.
2. DEFINITIONS: As used in this Interior Improvement Agreement, the
following terms shall have the following meanings, and terms which are not
defined below, but which are defined in the Lease and which are used in this
Interior Improvement Agreement, shall have the meanings ascribed to them by the
Lease:
A. APPROVED SPECIFICATIONS: The Term "Approved Specifications" shall
mean those specification for the Interior Improvements to be constructed by
Landlord which are described by EXHIBIT "C" to the Lease.
B. INTERIOR IMPROVEMENTS: The term "Interior Improvements" shall mean
all interior improvements to be constructed by Landlord in accordance with the
Approved Specifications (e.g., HVAC equipment and distribution, transformer and
power distribution, partitions, floor, wall, and window covering, lighting
fixtures).
C. INTERIOR IMPROVEMENT COSTS: The term "Interior Improvement Costs"
shall mean the following: (i) the total amount due pursuant to the general
construction contract entered into by Landlord to construct the Interior
Improvements; (ii) the cost of all governmental approvals required as a
condition to the construction of the Interior Improvements (including all
construction taxes imposed by the City of San Jose) in connection with the
issuance of a building permit for the Interior Improvements; (iii) all utility
connection or use fees; (iv) fees of architects or engineers for services
rendered in connection with the design and construction of the Interior
Improvements; (v) the cost of payment and performance bonds obtained by Landlord
or Prime Contractor to assure completion of the Interior Improvement, and (vi)
all consultant fees (of which up to $60,000.00 of fees for consultants hired
separately by Tenant may be paid out of the Tenant Improvement Allowance).
Interior Improvement Costs shall not include the cost: (a) to place the Building
systems in good operating condition, (b) to investigate, test, remove or
otherwise remediate any Hazardous Materials contamination in, on or about the
Premises prior to Tenants occupancy. The parties acknowledge that the City of
San Jose imposes certain taxes as a condition to the issuance of building
permits in certain circumstances, including the "Building and Structure
Construction Tax" imposed by Chapter 4.46 of the City of San Jose Municipal Code
(the "BSC Tax") and the "Commercial-Residential-Mobile Home Park Building Tax"
imposed by Chapter 4.47 of the City of San Jose Municipal Code (the "CRM Tax").
The parties further acknowledge that the rate for these two taxes is higher for
a structure designed or intended to be used for "industrial purposes". However,
the parties acknowledge and agree that (i) an additional BSC Tax will be due
upon the issuance of a building permit for all Interior Improvements if the City
of San Jose determines that the Interior Improvements are intended for
"industrial purposes" or (ii) a BSC Tax and a CRM Tax based on the value of the
Interior Improvements, plus an additional BSC Tax and a CRM Tax based on the
value of the shell, will be due if the City of San Jose determines that the
Building is intended for "commercial purposes", and (iii) any of such taxes that
must be paid in order to obtain building permits for the Interior Improvements
shall be "Interior Improvement Costs".
D. SUBSTANTIAL COMPLETION AND SUBSTANTIALLY COMPLETE: The term
"Substantial Completion" and "Substantially Complete" shall each mean the date
when all of the
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following have occurred with respect to the Interior Improvements in question:
(i) the construction of the Interior Improvements in question has been
substantially completed in accordance with the requirements of this Lease; (ii)
the architect responsible for preparing the plans shall have executed a
certificate or statement representing that the Interior Improvements in question
have been substantially completed in accordance with the plans and
specifications therefor; and (iii) the Building Department of the City of San
Jose has completed its final inspection of such improvements and has "signed
off" the building inspection card approving such work as complete.
3. SCHEDULE OF PERFORMANCE: Set forth in this paragraph is a schedule of
certain critical dates relating to Landlord's and Tenant's respective
obligations regarding the construction of the Interior Improvements (the
"Schedule of Performance"). Landlord and Tenant shall each be obligated to use
reasonable efforts to perform their respective obligations within the time
periods set forth in the Schedule of Performance and elsewhere in this Interior
Improvement Agreement. The Schedule of Performance is as follows:
Action Responsible
Items Due Date Party
----- -------- -----
A. Delivery to Prior to Lease Tenant
Landlord of Execution
Tenant's
Preliminary
Plans
for Landlord's
approval
B. Development Within fourteen (14) days Landlord
of the Final after Landlord's approval
Interior Plans of Tenant's Preliminary
for Tenant's Plans as provided for in
approval Subparagraph A herein.
C. Approval of Within five (5) days after Landlord
Final Interior Landlord receives Final
Plans by Interior Plans
Landlord
D. Commence- Within five (5) days after Landlord
ment of issuance of all necessary
construction governmental approvals
of Interior
Improvement
E. Substantial Within thirty to forty-nine Landlord
Completion (30-49) days after issuance
of Interior of building permit for
Improvements the Interior Improvements
4. CONSTRUCTION OF INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost
and expense, construct the Interior Improvements in accordance with the
following:
A. DEVELOPMENT AND APPROVAL OF PRELIMINARY INTERIOR PLANS: On or before
the due date specified in the Schedule of Performance, Tenant shall authorize
Landlord's
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architect to deliver to Landlord for Landlord's approval a proposed floor plan
identifying its requirements for the Interior Improvements that is consistent
with the Approved Specifications ("Tenant's Interior Requirements", or
"Preliminary Interior Plans"). Within five business days after receipt of
Tenant's Preliminary Interior Plans, Landlord shall approve or disapprove the
same. If Landlord disapproves, then Landlord and Tenant shall promptly meet and
resolve all of Landlord's objections.
B. DEVELOPMENT AND APPROVAL OF FINAL INTERIOR PLANS: Once the
Preliminary Interior Plans have been approved by Landlord, Landlord shall
complete and submit to Tenant for its approval final working drawings for the
Interior Improvements by the due date specified in the Schedule of Performance.
Tenant shall approve the final plans for the Interior Improvements or notify
Landlord in writing of its specific objections by the due date specified in the
Schedule of Performance. If Tenant so objects, the parties shall confer and
reach agreement upon final working drawings for the Interior Improvements within
five (5) business days after Tenant has notified Landlord of its objections. In
the event Tenant and Landlord do not resolve all of Tenant's objections within
such five (5) business day period, Landlord and Tenant shall immediately cause
the architect to meet and confer with both parties, who shall attempt to resolve
the parties objections and incorporate such resolution into the Final Interior
Plans, which process Landlord and Tenant shall cause to be completed within five
(5) business days after the conclusionof the five (5) business day period
referred to in the immediately preceding sentence. The final working drawings so
approved by Landlord and Tenant (including all changes made to resolve Tenant's
objections) are referred to herein as the "Final Interior Plans".
C. BUILDING PERMIT: As soon as the Final Interior Plans have been
approved by Landlord and Tenant, Landlord shall apply for a building permit for
the Interior Improvements, and shall diligently prosecute to completion such
approval process.
D. CONSTRUCTION CONTRACT: Landlord and Tenant shall cooperate to cause
the Interior Improvements to be constructed by a general contractor who is
engaged by Landlord in accordance with the procedures set forth in subparagraph
4D (1) hereof.
(1) The job of constructing the Interior Improvements shall be
offered for "competitive bid", on a fixed price basis, to three (3) general
contractors selected by Landlord and approved by Tenant. The construction
contract shall be awarded to the bidder submitting the lowest bid for the job.
Landlord shall submit to Tenant a list of general contractors acceptable to
Landlord to whom the job may be bid, and Tenant shall notify Landlord within
three (3) business days after receipt of such list of its objection to any
proposed contractor. Tenant's failure to object within such period of time shall
be deemed to be its approval of all bidders on the list so submitted by
Landlord. Landlord shall promptly notify Tenant, in writing, of the amount of
the lowest bid, including a comprehensive, detailed line-item budget, and Tenant
shall have the right to propose modifications to the Final Interior Plans within
five (5) business days after Tenant's receipt of Landlord's notice, subject to
Landlord's approval of such changes. Landlord shall not exceed the approved bid
for any line item without Tenant's prior written approval. Such revision of the
final Interior Plans shall be completed as expeditiously as possible; provided,
however, that the job shall nonetheless be awarded to the low bidder whose price
shall be adjusted based upon the changes requested by Tenant and approved by
Landlord made to the Final Interior Plans.
(2) Landlord and Tenant shall use their best efforts to
approve the general contractor and all subcontractors so that the construction
contract may be executed as soon as possible.
E. COMMENCEMENT OF INTERIOR IMPROVEMENTS: On or before the due date
specified in the Schedule of Performance, Landlord shall commence construction
for the Interior Improvements and shall diligently prosecute such construction
to completion, using all reasonable efforts to achieve Substantial Completion of
the Interior Improvements by the due date specified in the Schedule of
Performance.
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5. PAYMENT OF INTERIOR IMPROVEMENT COSTS: Landlord and Tenant shall have
the following obligations with respect to the payment of Interior Improvement
Costs:
A. Landlord shall be obligated to pay an amount equal to the Tenant
Improvement Allowance as provided for in Paragraph 3 of the First Addendum To
Lease for the Payment of Interior Improvement costs. If the total of Interior
Improvement Costs exceeds the amount of Landlord's required contribution, Tenant
shall be obligated to pay the entire amount of such excess. In no event shall
Landlord be obligated to pay for Interior Improvement Costs in excess of the
allowances provided for in Paragraph 3 of the First Addendum To Lease. If Tenant
becomes obligated to contribute toward paying Interior Improvement Costs
pursuant to this subparagraph 5A, then Landlord shall estimate amount of such
excess prior to commencing construction of the Interior Improvements and Tenant
shall pay to Landlord a proportionate share of each progress payment due to the
general contractor which bears the same relationship to the total amount of the
progress payment in question as the amount Tenant is obligated to contribute to
the payment of Interior Improvement Costs bears to the total estimated Interior
Improvement Costs. Tenant shall pay Tenant's share of any progress payment to
Landlord within five (5) business days after receipt of a statement therefor
from Landlord. At the time the final accounting is rendered by Landlord pursuant
to subparagraph 5C hereof, there shall be an adjustment between Landlord and
Tenant such that each shall only be required to contribute to the payment of
Interior Improvement Costs in accordance with the obligations set forth in this
subparagraph 5A, which adjustment shall be made within five (5) days after
Landlord notifies Tenant of the required adjustment. If Tenant is required to
make a payment to Landlord, Tenant shall make such payment even if Tenant elects
to audit the statement submitted by Landlord pursuant to subparagraph 5C. In the
event Tenant's audit discloses that an overpayment or underpayment was made by
Tenant, there shall be an adjustment between Landlord and Tenant as soon as
reasonably practicable such that each shall only be required to contribute to
the payment of costs in accordance with the obligations set forth in this
subparagraph 5A.
B. If Tenant fails to pay any amount when due pursuant to this
Paragraph 5, then (i) Landlord may (but without the obligation to do so) advance
such funds on Tenant's behalf, and Tenant shall be obligated to reimburse
Landlord for the amount of funds so advanced on its behalf, and (ii) Tenant
shall be liable for the payment of a late charge and interest in the same manner
as if Tenant had failed to pay Base Monthly Rent when due as described in
paragraph 3.4 of the Lease. Any amounts paid to Landlord by Tenant pursuant to
this subparagraph shall be held by Landlord as Tenant's agent, for disbursal to
the general contractor in payment for work costing in excess of Landlord's
required contribution.
C. Construction of the Interior Improvements shall be done on an "open
book" basis. Tenant shall have the right to review Landlord's construction costs
at any time upon at least 2 days prior notice. When the Interior Improvements
are Substantially Completed, Landlord shall submit to Tenant a final and
detailed accounting of all Interior Improvement Costs paid by Landlord,
certified as true and correct by Landlord's financial officers. Tenant shall
have the right to audit the books, records, and supporting documents of Landlord
to the extent necessary to determine the accuracy of such accounting during
normal business hours after giving Landlord at least two (2) days prior written
notice. Tenant shall bear the cost of such audit, unless such audit discloses
that Landlord has overstated the total of such costs by more than two percent
(2%) of the actual amount of such costs, in which event Landlord shall pay the
cost of Tenant's audit. Any such audit must be conducted, if at all, within
ninety (90) days after Landlord delivers such accounting to Tenant.
6. CHANGES TO APPROVED PLANS: Once the Final Interior Plans have been
approved by Landlord and Tenant, neither shall have the right to order extra
work or change orders with respect to the construction of the Interior
Improvements without the prior written consent of the other. All extra work or
change orders requested by either Landlord or Tenant shall be made in writing,
shall specify any added or reduced cost and/or construction time resulting
therefrom, and shall become effective and a part of the Final Interior Plans
once approved in writing by both
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parties. If a change order requested by Tenant results in an increase in the
cost of constructing the Interior Improvements, Tenant shall pay the amount of
such increase caused by the change order requested by Tenant at the time the
change order is approved by both Landlord and Tenant if and to the extent such
change order causes the Interior Improvement Costs to exceed Landlord's required
contribution thereto described in subparagraph 5A. Subject to Article 2.2 of the
Lease, if a change order requested by Tenant results in an increase in the
amount of construction time needed by Landlord to complete the Interior
Improvements, paragraph 7 hereof may apply.
7. DELIVERY OF POSSESSION AND PUNCH LIST: As soon as the Interior
Improvements are Substantially Completed, Landlord and Tenant shall together
walk through the Premises and inspect all Interior Improvements so completed,
using reasonable efforts to discover all uncompleted or defective construction
in the Interior Improvements. After such inspection has been completed, each
party shall sign a "punch list", which shall include a list of all "punch list"
items which the parties agree are to be corrected by Landlord. As soon as such
inspection has been completed, Landlord shall deliver possession of the Premises
to Tenant. Landlord shall use reasonable efforts to complete and/or repair such
"punch list" items within thirty (30) days after executing the "punch-list".
Tenant shall have the right to update the punchlist with any additional items
discovered within 30 days after the Tenant's receipt of notice of Substantial
Completion of the Interior Improvements.
8. STANDARD OF CONSTRUCTION AND WARRANTY: Landlord here by warrants that
the Interior Improvements shall be constructed substantially in accordance with
the Final Interior Plans (as modified by change orders approved by Landlord and
Tenant), all Private Restrictions and all Laws, in a good and workmanlike
manner, and all materials and equipment furnished shall conform to such Final
Interior Plans and shall be new and otherwise of good quality. The foregoing
warranty shall be subject to, and limited by, the following:
A. Once Landlord is notified in writing of any breach of the
above-described warranty, Landlord shall promptly commence the cure of such
breach and complete such cure with diligence at Landlord's sole cost and
expense.
B. Landlord's liability pursuant to such warranty shall be limited to
the cost of correcting the defect or other matter in question. In no event shall
Landlord be liable to Tenant for any damages or liability incurred by Tenant as
a result of such defect or other matter, including without limitation damages
resulting from any loss of business by Tenant or other consequential damages.
C. Notwithstanding anything contained herein, Landlord shall not be
liable for any defect in design, construction, or equipment furnished which is
discovered and of which Landlord receives written notice from Tenant after the
first (1st) anniversary of the recordation of a notice of completion for the
work of improvement affected by the defect.
D. With respect to defects for which Landlord is not responsible
pursuant to subparagraph 9C, Tenant shall have the benefit of any construction
or equipment warranties existing in favor of Landlord that would assist Tenant
in correcting such defect and in discharging its obligations regarding the
repair and maintenance of the Premises. Upon request by Tenant, Landlord shall
inform Tenant of all written construction and equipment warranties existing in
favor of Landlord which affect the Interior Improvements. Landlord shall
cooperate with Tenant in enforcing such warranties and in bringing any suit that
may be necessary to enforce liability with regard to any defect for which
Landlord is not responsible pursuant to this paragraph so long as Tenant pays
all costs reasonably incurred by Landlord in so acting.
E. Landlord makes no other express or implied warranty with respect to
the design, construction or operation of the Interior Improvements except as set
that forth in this paragraph.
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9. CONDITION TO LANDLORD'S PERFORMANCE: Landlord's obligations under the
Lease are subject to the satisfaction or waiver of the condition that Landlord
obtain all building permits and other governmental approvals required in order
to commence construction of the Interior Improvements by the due dates specified
in the Schedule of Performance. If such condition is not satisfied or waived
within the applicable time period, Landlord shall have the option of terminating
the Lease; provided, however, that Landlord shall have the option to extend the
time period for the satisfaction of such condition for a period of up to sixty
(60) days to enable Landlord to continue its efforts to cause such condition to
be satisfied. If any such option to extend the time for satisfaction of this
condition is exercised, (i) Landlord shall continue to use reasonable efforts to
cause the condition to be satisfied; (ii) all other time periods contained in
the Schedule of Performance which are impacted by such extension shall be
appropriately adjusted; and (iii) such extension shall not constitute a delay
caused by Tenant pursuant to Paragraph 7 hereof, nor shall Landlord in any way
be penalized for exercising such option to obtain additional time to cause the
condition to be satisfied. If Landlord becomes entitled to and elects to so
terminate the Lease, the Lease shall terminate on the date notice is so given to
Tenant. Landlord shall be under an obligation of good faith to use all
reasonable efforts to cause the condition to be satisfied.
10. EFFECT OF AGREEMENT: In the event of any inconsistency between this
Improvement Agreement and the Lease, the terms of this Improvement Agreement
shall prevail.
LANDLORD: TENANT:
ORCHARD INVESTMENT COMPANY NO. 901 Clarify Inc.
a California general partnership a Delaware corporation
By: NELO, a California general partnership By: /s/ David A. Stamm
-------------------
By: New England Mutual Life Insurance Co. Title: President
a Massachusetts corporation, Date: August 9, 1996
a general partnership
By: /s/Thomas J. Lunny
-------------------
Date: August 13, 1996
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EXHIBIT C
Approved Specifications
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EXHIBIT D
Not applicable
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EXHIBIT E
WHEN RECORDED RETURN TO :
ELINORA S. MANTOVANI, ESQ.
WILSON, SONSINI, GOODRICH & ROSATI
Two Palo Alto Square, Suite 900
Palo Alto, California 94306
(415) 493-9300
DECLARATION OF COVENANTS, CONDITIONS
AND RESTRICTIONS OF
ORCHARD BAYSHORE CENTRE
THIS DECLARATION is made on January 25, 1985, by NELO, a California general
partnership, and ORCHARD INVESTMENT COMPANY NUMBER 901, a California general
partnership (hereinafter collectively called "Declarant") as the owners of that
certain real property situated in the City of San Jose, County of Santa Clara,
State of California described in Exhibit "A" hereto, which exhibit is
incorporated herein by this reference.
ARTICLE 1
DEFINITIONS
1.1 Unless the context otherwise specifies or requires, the terms defined
in this Article shall, for all purposes of this Declaration, have the meanings
herein specified.
1.2 ARCHITECT: The term "Architect" shall mean a person holding a
certificate to practice architecture in the State of California under authority
of the Business and Professions Code of the State of California.
1.3 DECLARATION: The term "Declartion" shall mean this Declaration of
Covenants, Conditions and Restrictions.
1.4 DEED OF TRUST: The term "Deed of Trust" or "Trust Deed" shall mean a
mortgage as well as a deed of trust.
1.5 APPROVING AGENT: The term "Approving Agent" shall mean, in the
following order or precedence:
A. ORCHARD PROPERTIES, a California corporation ("Orchard"), whose
address is 1914 Junction Avenue, San Jose, California 95131, shall be the
Approving Agent until Orchard shall have resigned as Approving Agent by
executing a written resignation and causing an original of same to be recorded,
and by giving written notice of such resignation to each Owner of record, as
shown on the most recent county assessor's roll, of real property then subject
to this Declaration; provided that Declarant may remove Orchard as Approving
Agent by delivering a "Notice of Removal" to Orchard and causing an original of
the same to be recorded and by giving written notice of such removal to each
Owner of record, as shown on the most recent county assessor's roll, of real
property then subject to this Declaration; provided, that in the event of such
resignation or removal, Declarant shall once again become Approving Agent with
the right and power to appoint another Approving Agent, by executing a written
assignment to a third party (the "Appointed Approving Agent") of Declarant's
duties as Approving Agent, which assignment shall have been accepted in writing,
and causing an original of such assignment to be recorded, and by giving written
notice of such assignment to each Owner of record, as shown on the most recent
county assessor's roll, of real property then subject to this Declaration, in
which event such Appointed Approving Agent shall be the Approving Agent until
the resignation or removal of such Appointed Approving Agent, as provided
herein.
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B. If at any time during which Declarant shall serve as Approving
Agent, or if Declarant shall re-acquire the right to serve pursuant to
subparagraph A above, any corporation, association or trust controlled by
Declarant, or with which Declarant has been merged or consolidated, or by which
Declarant has been acquired (hereinafter referred to as "Declarant's
Successor"), is certified of record by Declarant as Approving Agent, then
Declarant's Successor shall be the Approving Agent provided it has been granted
of record by Declarant the exclusive right to act as Approving Agent pursuant to
this Declaration, in which event Declarant's Successor shall be the Approving
Agent until Declarant's Successor shall have resigned as Approving Agent by
executing a written resignation and causing an original of the same to be
recorded, and by giving written notice of such resignation to each Owner of
record, as shown on the most recent county assessor's roll, of real property
then subject to this Declaration.
C. Any association (whether or not incorporated) organized by the
Owners of sixty-six and two-thirds percent (66-2/3%) of the land area (exclusive
of portions dedicated to a public agency or authority for a public use) then
subject to this Declaration, in which membership is available to all Owners and
decisions are made on the basis of majority vote with one (1) vote assigned for
each square foot of land owned by each Owner, but only if the Owners organizing
such association, within not less than six (6) months from the date that Orchard
or Declarant or Declarant's Successor, as the case may be, shall have ceased to
be the Approving Agent, shall have (i) organized such association and (ii)
executed and recorded a statement in the form of an amendment to this
Declaration as described in Paragraph 8.2 setting forth that such organization
has been formed for the purpose of acting as and assuming the funcitons of an
Approving Agent pursuant to this Declaration, and (iii) given written notice to
all Owners of record of real property then subject to this Declaration that such
association has been formed.
D. If Orchard or Declarant or Declarant's Successor, as the case may
be, shall cease to be the Approving Agent and no association is formed pursuant
to and satisfying all the conditions precedent contained in Paragraph 1.5.C
within the specified time period, there shall be no Approving Agent for the
remainder of the life of this Declaration.
1.6 STRUCTURES: The Term "structure(s)" shall include all structures,
buildings, outbuildings, sheds, fences and screening walls over three (3) feet
in height, barriers or retaining walls.
1.7 MORTGAGEE: The term "Mortgagee" shall mean a beneficiary under or a
holder of a Deed of Trust as well as a mortgagee under a mortgage.
1.8 THE ORCHARD BAYSHORE CENTRE: The term "Orchard Bayshore Centre" shall
mean all of the real property described in Exhibit "A" hereto.
1.9 RESTRICTIONS: The term "Restrictions" shall mean the Covenants,
Conditions and Restriction set forth in this Declaration, as it may from time to
time be amended or supplemented.
1.10 OWNER: The term "Owner" shall mean and refer to any person owning a
fee estate in the land, or any portion thereof, contained within the Orchard
Bayshore Centre, but excluding either (i) any person who holds such interest as
security for the payment of an obligation, or (ii) any person holding a
leasehold estate.
1.11 RECORD, RECORDED: The terms "record" or "recorded" shall mean, with
respect to any document, the recordation of said document in the office of the
County Recorder of the County of Santa Clara, State of California.
1.12 SIGN: The term "sign" shall mean any structure, device or contrivance,
electric or non-electric, and all parts thereof, which is erected or used for
advertising purposes, upon or within
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which any poster, bill, bulletin, printing, lettering, painting, device or other
advertising of any kind whatsoever is used, placed, posted or otherwise fastened
or affixed to ground or structures.
1.13 STREETS: The term "street(s)" shall mean any publicly dedicated street
or highway, or other publicly dedicated thorough-fare, within or adjacent to the
Orchard Bayshore Centre and shown on any recorded subdivision or parcel map, or
record of survey, whether designated thereon as a publicly dedicated street,
boulevard, place, drive, road, terrace, way, lane, circle or court.
1.14 VISIBLE FROM NEIGHBORING PROPERTY: The term "visible from neighboring
property" shall mean, with respct to any given object, that such object is or
would be visible to a person six (6) feet tall having 20/20 vision and standing
on any part of such neighboring property at an elevation no greater than the
elevation of the base of the object being viewed.
1.15 PERSON: The term "person" shall mean an individual, group of
individuals, corporation, partnership, trust, unincorporated business
association or such other legal entity as the context in which such term is used
may imply.
1.16 LOT: The term "lot" shall mean any parcel of land contained within the
Orchard Bayshore Centre as divided or subdivided on subdivision or parcel map(s)
recorded in the official records of Santa Clara County, California, as they from
time to time become current.
1.17 FRONT: The term "front" shall mean, with respect to any structure, any
wall facing a street.
ARTICLE 2
PROPERTY SUBJECT TO THE RESTRICTIONS
2.1 GENERAL DECLARATION CREATING THE MUTUAL RESTRICTIONS: Declarant hereby
declares that all of the real property located in the County of Santa Clara,
State of California as described in Exhibit "A" attached hereto and incorporated
herein by this reference (sometimes hereinafter called the "Orchard Bayshore
Centre"), is and shall be conveyed , hypothecated, encumbered, leased, occupied,
build upon or otherwise used, improved or transferred, in whole or in part,
subject to the Restrictions, and that all of said Restrictions, and all the
covenants, conditions and agreements herein contained, are declared and agreed
to be in furtherance of a general plan for the subdivision, improvement and sale
of said real property, and are established for the purpose of enhancing and
perfecting the value, desirability and attractiveness of said real property and
every part thereof. Declarant further declares that (i) the Restrictions and
each of the covenants, conditions and agreements herein contained are made for
the direct, mutual and reciprocal benefit of each and every lot contained within
the Orchard Bayshore Centre, and that such Restricitons are and shall be mutual
equitable servitudes burdening each lot for the benefit of all other lots within
the Orchard Bayshore Centre, and (ii) the Restricitons and each of the
covenants, conditions and agreements herein contained shall be "covenants
running with the land" burdening each lot within the Orchard Bayshore Centre for
the benefit of all other lots within the Orchard Bayshore Centre, the burdens of
which shall be binding upon each Owner, lessee, licensee, occupant or user of
each lot within the Orchard Bayshore Centre, his successors and assigns, for the
benefit of each Owner of all other lots within the Orchard Bayshore Centre, his
successors and assigns.
ARTICLE 3
APPROVAL OF PLANS FOR STRUCTURES
3.1 APPROVAL REQUIRED: So long as there is a then serving Approving Agent,
no structure shall be erected, placed, constructed, substantially remodeled,
rebuilt or reconstructed on any land subject to this Declaration until the
following procedures have been fully complied with and the Approving Agent has
approved in writing the Preliminary Plans (as defined below) and the Final Plans
(as defined below):
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A. The Owner, lessee, licensee or other occupant of the lot to be
improved or his authorized agent (the "Applicant") shall deliver written
preliminary plans and specifications (the "Preliminary Plans") to the Approving
Agent, in duplicate, over the authorized signature of Applicant. The Preliminary
Plans shall be in such form and containing such information as may be required
by the Approving Agent for the following:
(1) A site development plan showing the location of all
proposed driveways, parking areas, walkways,
landscaped areas, storage and refuse areas, and
building areas;
(2) A landscaping plan for the particular lot;
(3) A sign and lighting plan;
(4) A building elevation plan showing dimensions,
materials and exterior color schemes;
(5) A grading plan.
B. At such time as the Approving Agent shall have approved, in writing,
the Preliminary Plans and prior to the submission of the Final Plans (as that
term is defined herein) to the appropriate governmental body, Applicant shall
submit to the Approving Agent complete and detailed final plans, specifications
and working drawings (the "Final Plans") with regard to the proposed
improvements, which Final Plans will be in such form as may then be required by
the City of San Jose or County of Santa Clara, as the case may be, for review by
said City or County and which shall contain such additional information as may
be required by the Approving Agent; provided, that such Final Plans need not
include detailing with regard to interior improvements such as interior
partitioning walls.
C. No prior approval of any Preliminary Plans or Final Plans shall be
required if there is no then serving Approving Agent to approve such plans.
Changes in approved Preliminary Plans or approved Final Plans which materially
affect landscaping, signing, building size, placement or external apprearance
must be similarly submitted to and approved by the Approving Agent.
3.2 ADDITIONAL APPROVAL REQUIRED: So long as there is a then serving
Approving Agent, no exterior surface of any structure or improvement existing on
any lot subject to this Declaration shall be painted, texturized or otherwise
changed, no alterations, additions or changes of any type whatsoever shall be
made to any landscaping placed on any lot subject to this Declaration, and no
additions or alterations to any paved area on any lot subject to this
Declaration, shall be made until plans for such painting, texturizing,
alterations, additions or changes, including samples of colors, materials,
landscaping plans and/or plans and specifications with regard to paving, as the
case may require, together with such other information as shall be required by
the Approving Agent, shall have been submitted to the Approving Agent and the
Approving Agent shall have approved, in writing, such requested change.
3.3 BASIS FOR APPROVAL: The approval by the Approving Agent of any plans
and specifications as provided in this Declaration shall not be unreasonably
withheld. However, the Approving Agent shall have the right to disapprove any
plans and specifications submitted hereunder for any reason including but not
limited to any of the following:
A. Failure to comply with any of the Restrictions;
B. Failure to include information in such plans and specifications as
may have been reasonably requested by the Approving Agent:
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C. Objections to the exterior design of the proposed structures, or if
the appearance of materials to be used in the construction of any proposed
structure are found by the Approving Agent to be incompatible with existing
structures in the Orchard Bayshore Centre;
D. Objections based upon the inadequacy of the number of onsite parking
spaces, considering (i) the contemplated use or future possible use of the
structures proposed, and (ii) the availability of additional parking offsite;
E. Objections to the location of any proposed structure upon any lot as
it relates to other lots within the Orchard Bayshore Centre;
F. Objections to the grading plan for any lot;
G. Objections to the color scheme, finish, proportions, style of
architecture, height, bulk or appropriateness of any structure as it relates to
other structures within the Orchard Bayshore Centre;
H. Objections to the landscaping materials as they relate to other
landscaping materials then used or contemplated for use within the Orchard
Bayshore Centre; and
I. Any other matter which, in the judgment of the Approving Agent,
would render the proposed structure or structures or use inharmonious with the
general plan for improvement of Orchard Bayshore Centre, or with structures or
landscaping then located upon or proposed to be located upon other lots or other
properties within Orchard Bayshore Centre.
3.4 APPROVAL: Upon approval by the Approving Agent of any plans and
specifications submitted hereunder, a copy of such plans and specifications, as
approved, shall be deposited for permanent record with the Approving Agent, and
a copy of such plans and specifications bearing such approval, in writing, shall
be returned to the Applicant submitting the same.
3.5 RESULT OF INACTION: If the Approving Agent fails either to approve or
to disapprove the Preliminary Plans or the Fianl Plans within thirty (30) days
after such Preliminary Plans or Final Plans, as the case may be, have been
submitted to it, it shall be conclusively presumed that the Approving Agent has
approved said Preliminary or Final Plans; provided, however, that if within said
thirty (30) day period, the Approving Agent gives written notice of the fact
that more time is required for the review of such plans, there shall be no
presumption that the plans are approved until the expiration of a reasonable
period of time as set forth in said notice, not to exceed thirty (30) days. Such
presumption shall not apply if the review fee required by Paragraph 3.9 was not
paid at the time the plans were first submitted to the Approving Agent.
3.6 PROCEEDING WITH WORK: Upon receipt of approval from the Approving Agent
pursuant to this Article 3, the Applicant to whom the approval is given shall,
as soon as practicable, satisfy all conditions of the approval and diligently
proceed with the commencement and completion of all approved construction,
refinishing, alterations and excavations. In all cases work shall be commenced
within one (1) year from the date of such approval. If Applicant fails to
commence construction of the structures within one (1) year from date of such
approval, then the approval given pursuant to this Article 3 shall be deemed
revoked unless the Approving Agent, upon request made prior to the expiration of
said one (1) year period, extends in writing the time for commencing work. In
all cases work shall be completed in accordance with the Preliminary Plans and
the Final Plans within two (2) years from the date of issuance of the first ( or
only) building permit with regard to such work.
3.7 LIMITATION ON APPROVING AGENT: In no event shall the Approving Agent
disapprove any plans and specifications solely by reason of the Applicant's
proposed use of the lot if such use is specifically permitted pursuant to
Paragraph 5.1 of this Declaration.
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3.8 LIABILITY: Neither the Declarant nor the Approving Agent shall be
liable for any damage, loss or prejudice suffered or claimed on account of:
A. The approval or disapproval of any plans, drawings and
specifications, whether or not defective;
B. The construction or performance of any work, whether or not done
pursuant to approved plans, drawings and specifications; or
C. The development of any property within Orchard Bayshore Centre.
3.9 REVIEW FEE: An architectural review fee shall be paid to the Approving
Agent as follows:
A. At such time as any Preliminary Plans pertaining to the erection,
placement, construction, remodeling or reconstruction of structures within the
Orchard Bayshore Centre are submitted for approval based on the following
schedule:
(1) When the plans submitted are prepared by an architect, the
architectural review fee shall be Three Hundred Fifty Dollars ($350.00);
(2) In all other cases the architectural review fee shall be
Four Hundred Dollars ($400.00).
B. At such time as documents required to be submitted pursuant to
Paragraph 3.2 above are submitted for approval, the architectural review fee
shall be the sum of One Hundred Dollars ($100.00).
3.10 CERTIFICATE OF COMPLIANCE: So long as there is an Approving Agent,
such Approving Agent shall, within twenty-one (21) days following written
request therefor by an Owner, execute and deliver to such requesting Owner a
"Certificate of Compliance" stating that the lot specified by such Owner in the
request is in compliance with Article 3 of these Restrictions or, if such lot is
not in compliance with Article 3 of these Restrictions, then stating the nature
of such noncompliance and the specific paragraph of this Article 3 with which
said lot does not comply.
ARTICLE 4
LIMITATIONS ON IMPROVEMENTS
4.1 UTILITY LINES: All onsite utility transmission lines shall be placed
underground.
4.2 COVERAGE: No more than thirty-five percent (35%) of the square foot
area of any lot shall be occupied by structures.
4.3 MINIMUM SETBACK LINES: No structures, nor any part thereof, shall be
placed closer than forty (40) feet from a property line fronting on any street
("frontage setback area"); provided, however, no structure or any part thereof
shall be placed closer than twenty (20) feet from any property line not fronting
on any street ("interior setback area").
4.4 PARKING AREAS: No parking spaces shall be located, and no parking shall
be permitted, within a frontage setack area adjacent to any street, except that
parking shall be permitted within said setback area if such parking is screened
from view from the street by a screen wall, shrubbery or berms extending at
least forty-two (42) inches above the high point of the finished adjacent
pavement in said parking area. In no case shall such parking area be closer than
twenty-five (25) feet from a property line fronting on any street or closer than
ten (10) feet from any property line not fronting on any street.
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4.5 STORAGE AND LOADING AREAS: No loading dock, truck loading or storage
area or other such facility shall be located in the front of any building or
structure, or within any frontage setback area, or between a front of any
building or structure and the street which said front faces.
ARTICLE 5
RESTRICITONS ON OPERATION AND USE
5.1 PERMITTED USES: Subject to compliance with these Restrictions, the
following uses shall be permitted in the Orchard Bayshore Centre:
A. Manufacture (including storage of raw materials and finished
products therefrom) of the following:
(1) Pharmaceutical and cosmetic products;
(2) Optical, electronic, timing and measuring instruments for
use in research, development, business and professional facilities; and
(3) Industrial, communication, transportation and utility
equipment;
B. Wholesaling, warehousing and distribution establishments and public
utility facilties (excluding storing and warehousing of acids, chemicals,
cement, plaster, petroleum products or explosive materials);
C. Research, experimental and engineering laboratories;
D. Catalog sales and mail order establishments;
E. Establishments for the repair, cleaning and servicing of commercial
or industrial equipment or products;
F. Construction firms, but only such construction firms whose
activities are carried on entirely within an enclosed building and which have no
construction yard on said lot;
G. So long as there is an Approving Agent, any commercial use not
specifically prohibited by Paragraph 5.3 which is first approved in writing by
the Approving Agent;
H. So long as there is an Approving Agent, any industrial or
manufacturing use not specifically prohibited by Paragraph 5.3 which is first
approved in writing by the Approving Agent;
I. If there is no Approving Agent, any industrial, manufacturing or
commercial use permitted by the then existing zoning or other applicable land
use regulations as promulgated by requisite governmental authorities, except
those uses specifically prohibited by Paragraph 5.3.
5.2 CONDUCT OF PERMITTED USES: All permitted uses shall be performed or
carried out entirely within a building that is designed and constructed for such
uses. Certain activities which cannot be carried on within a building may be
permitted, but only (i) if there is then serving an Approving Agent, if the
Approving Agent specifically consents, in writing, to the use and the location
for such activity, or (ii) if there is no then serving Approving Agent, if
allowed under then existing zoning or other applicable land use regulations,
except for uses which are specifically prohibited pursuant to Paragraph 5.3;
provided, however, that in either of the foregoing situations such use shall be
permitted ONLY IF (x) such activity is screened so as not to be visible from
neighboring property and streets, and (y) all lighting required for such use is
shielded from adjacent streets.
5.3 PROHIBITED USES: The following operations and uses shall not be
permitted on any property subject to these Restrictions:
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A. Residential use of any type;
B. Trailer courts, mobile home parks or recreational vehicle
campgrounds;
C. Junk yards or recycling facilities;
D. Drilling for and/or removal of oil, gas or other hydrocarbon
substances (except that this provision shall not be deemed to prohibit entry on
the property below a depth of five hundred (500) feet for such purposes);
E. Commercial excavation except in the course of approved construction;
F. Distillation of bones;
G. Dumping, diposal, incineration or reduction of garbage, sewage,
offal, dead animals or refuse;
H. Fat rendering;
I. Stockyards or slaughter of animals;
J. Cemetaries;
K Refining of petroleum or its products;
L. Smelting of iron, tin, zinc or other ores;
M. Jail or honor farms;
N. Labor or migrant worker camps;
O. Truck or bus terminals;
P. Petroleum storage yards;
Q. Auto wrecking, auto repair or auto painting establishment.
5.4 EMISSIONS: No use shall be permitted to exist or operate on any lot
which use:
A. Emits dust, sweepings, dirt, cinders, fumes, odors, radiation,
gases, vapors, discharges, liquid or solid wastes or other harmful matter into
the atmosphere or into any stream, river or other body of water which may
adversely affect (i) the health or safety of persons within the area, or (ii)
the use of property within the Orchard Bayshore Centre, or (iii) vegetation
within the Orchard Bayshore Centre, nor shall waste or any substance or
materials of any kind be discharged into any public sewer serving the Orchard
Bayshore Centre or any part thereof, in violation of any regulations of any
public body having jurisdiction;
B. Produces intense glare or heat unless such use is performed only
within an enclosed or screened area and then only in such manner that the glare
or heat emitted will not be discernible from any exterior lot line;
C. Creates a sound pressure level in violation of any regulation of any
public body having jurisdiction;
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D. Allows the visible emissions of smoke outside any building (other
than the exhausts emitted by motor vehicles or other transportation facilities)
in violation of any regulation of any public body having jurisdiction. This
requirement shall also be applicable to the disposal of trash and waste
materials;
E. Creates a ground vibration that is perceptible, without instruments,
at any point along any of the exterior lot lines.
5.5 SIGNS: The approving Agent may, from time to time, enact sign criteria
setting forth such requirements for signs to be erected within the Orchard
Bayshore Centre as the Approving Agent may deem desirable, which sign criteria
shall become effective upon recordation thereof in the official records of Santa
Clara County. All signs erected by any Owner on a lot within the Orchard
Bayshore Centre subsequent to the recordation of said sign criteria shall be in
conformance with those criteria. Except as specifically otherwise allowed in any
then existing sign criteria, no sign shall be installed, erected or placed on
any lot then subject to this Declaration other than those signs identifying the
name, business and products of the person or firm occupying the lot and those
offering the lot for sale or lease.
5.6 LANDSCAPING CRITERIA: The approving agent may, from time to time, enact
landscaping criteria setting forth such requirements for landscaping to be
placed on or in lots located within the Orchard Bayshore Centre as the Approving
Agent may deam desirable including, without limitation, the amount of area to be
planted in sod lawns or other plantings, type of plantings, placement of
irrigation systems and requirements for trees and raised planter boxes, which
landscape criteria shall become effective upon recordation thereof in the
official records of Santa Clara County. All landscaping placed by any Owner on a
lot within the Orchard Bayshore Centre subsequent to the recordation of said
landscape criteria shall be in conformance with those criteria.
5.7 STORAGE AND REFUSE COLLECTION AREAS:
A. No materials, supplies or equipment, including company owned or
operated trucks or motor vehicles, shall be stored in any area on a lot except
inside a closed building, or behind a visual barrier screening such areas so
that they are not visible from the neighboring properties or streets. No storage
areas shall be maintained between a street and the front of the structure
nearest such street.
B. All outdoor refuse collection areas shall be visually screened so as
not to be visible from streets and neighboring property. No refuse collection
areas shall be maintained between a street and the front of the structure
nearest such street.
5.8 CONDITION OF PROPERTY: The owner of each lot shall at all times keep
and properly maintain the premises, structures, improvements, landscaping,
paving and appurtenances on the lot in a safe, clean, sightly and wholesome
condition and in a good state of repair, shall comply in all respects with all
governmental, health, fire and police requirements and regulations, shall cause
to be regularly removed at its own expense any rubbish of any charcter whatsover
which may accumulate on such lot, and in particular and without limitation shall
perform its obligations under this Paragraph 5.8 as follows:
A. All areas of each lot not used for structures, walkways, paved
driveways, parking or storage areas shall at all times be maintained, by a
professional landscape engineer or gardener, in a fully and well kept landscaped
condition utilizing ground cover and/or shrub and tree materials. Undeveloped
areas proposed for future expansion shall be maintained in a weed-free
condition. An automatic underground landscape irrigation system shall be
provided by the Owner of each lot sufficient to irrigate properly all landscaped
areas within such lot.
B. Parking areas shall be paved so as to provide all-weather surfaces.
Each parking space shall be designated by lines painted on the paved surfaces
and shall be adequate in area. All
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parking areas shall provide, in addition to parking spaces, adequate driveways
and space for the movement of vehicles.
5.9 EXCAVATION: No excavation shall be made on, and no sand, gravel, soil
or other material shall be removed from, any lot except in connection with the
construction of structures. Upon completion of such construction, exposed
openings shall be backfilled to grade, and disturbed ground shall be graded
level and paved or landscaped in conformity with the requirements of this
Declaration.
ARTICLE 6
VARIANCES
6.1 VARIANCE BY APPROVING AGENT: So long as there shall be an Approving
Agent then serving, it shall have the exclusive right to grant variances from
the requirements set forth in Article 4, or to waive entirely the restrictions
set forth in Article 4 with respect to any given lot, as the Approving Agent, in
its sole discretion, shall determine is necessary for the successful development
of the Orchard Bayshore Centre.
6.2 GRANTING OF VARIANCE: Any variance granted hereunder shall be effective
upon, and only upon, the recordation of a Notice of Variance executed by the
Approving Agent.
ARTICLE 7
ENFORCEMENT
7.1 REMEDY: So long as there is a then serving Approving Agent, it shall
have the exclusive right to enforce the provisions of this Declaration, but
without any liability for failure to do so. In the event that the Approving
Agent fails to take action respecting any breach or violation of any of the
provisions of this Declaration within thirty (30) days from the written demand
by any Owner within the Orchard Bayshore Centre to take such action, or if such
breach or violation of this Declaration occurs when there is no then serving
Approving Agent, then any Owner of a lot within the Orchard Bayshore Centre
shall have the right to enforce the provisions contained in this Declaration.
7.2 RIGHT TO ENTER
A. So long as Orchard serves as the Approving Agent, Orchard and only
Orchard, in addition to any other remedy available, may, with respect to a
violation or breach of the covenants to maintain as set forth in Paragraph 5.8,
and only with respect to a breach or violation of the covenants to maintain as
contained in Paragraph 5.8, enter upon the lot on which such violation or breach
shall then be occurring and take whatever action it may deem necessary to effect
compliance with the provisions of said Paragraph 5.8, including without
limitation making such repairs and performing such required maintenance as may
be necessary to conform to the requirements imposed by these Restrictions, at
the expense of the Owner of said lot, provided that Orchard shall have first
given to the Owner of such lot at least sixty (60) days prior written notice of
its intention to do so, and then only if said Owner of such lot shall have
failed to correct said violation or breach within said sixty (60) day period if
such violation or breach was curable within sixty (60) days, or if not curable
within sixty (60) days then only if such Owner shall have failed to commence and
then diligently sought to cure such violation or breach. In the event that
Orchard, after having complied with the above notice requirements, enters upon
such lot and remedies such breach or violation, the Owner of such lot shall be
obligated to reimburse Orchard forthwith upon demand for all costs and expenses
incurred by Orchard in connection with such remedy ("Non-Compliance Expenses")
in accordance with the provisions of this Paragraph 7.2. Each Owner of any lot
within the Orchard Bayshore Centre, by acceptance of a deed or other conveyance
whether or not it shall be so expressed in any such deed or other conveyance, is
and shall be deemed to covenant and agree to pay to Orchard an assessment for
any Non-Compliance Expenses incurred by Orchard in connection with such Owner's
lot.
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B. Orchard shall maintain accurate books and records reflecting any
Non-Compliance Expenses, and shall provide each owner of an affected lot with a
statement in respect thereto. Each affected Owner shall pay all Non-Compliance
Expenses incurred applicable to such Owner's lot within ten (10) days of receipt
of a statement. If such statement is deposited in the United States mail, duly
certified or registered, with postage prepaid and addressed to the Owner
affected thereby at his lot, the same shall be deemed received by such Owner on
the fifth (5th) business day after such deposit.
C. Any Non-Compliance Expenses assessments, together with interest
thereon and costs of collection thereof as provided hereinbelow, shall be a
charge on the lot and shall be continuing lien upon the lot against which such
assessment are made. The lien shall become effective upon recordation of a
notice of claim of lien as provided herein. Such assessment, together with
interest and costs, shall also be the personal obligation of the person who is
the Owner of such lot at the time when the assessment, or any portion thereof,
fell due but in no event shall the person who is the Owner of such lot be
personally obligated for a sum in excess of Two Thousand Dollars ($2,000.00) for
any single violation (but without limiting the amount that may become a lien
upon such lot for any given violation or the aggregate of the personal
obligations of the Owner for successive violations). Any personal obligation
created hereunder shall not pass to such Owner's successors in title unless it
is expressly assumed by them, but any lien created hereunder shall remain a
charge against the lot except as to "bona fide purchasers or encumbrancers for
value" without notice of same. No Owner may waive or otherwise escape personal
liability for the assessment provided herein by non-use or abandonment of his
lot.
D. If any Non-Compliance Expenses assessment or any portion thereof is
not paid within ten (10) days after the date due, it shall bear interest from
the date of deliquency at the then legal rate and, in addition to all other
legal and equitable rights or remedies, Orchard may, at its option, bring an
action at law against the Owner who is personally obligated to pay the same, or
upon compliance with the notice provisions set forth hereinbelow, foreclose the
lien against the affected lot, and there shall be added to the amount of such
assessment or any portion thereof the interest thereon, all costs and expenses,
including reasonable attorney's fees, incurred by Orchard in collecting the
delinquent assessment. In lieu of judicially foreclosing the lien, Orchard, at
its option, may foreclose such lien by proceeding under a power of sale as
provided hereinbelow, such a power of sale being given to Orchard as to each and
every lot for the purpose of collecting assessments.
E. No action shall be brought to foreclose the lien, or to proceed
under the power of sale, less than thirty (30) days after the date that a notice
of claim of lien, executed by Orchard, is recorded, which notice shall state the
amount claimed (which may include interest and costs of collection, including
reasonable attorneys' fees), a good and sufficient legal description of the lot
being assessed, the name of the record Owner or reputed Owner thereof, and the
name and address of Orchard as claimant. A copy of said notice of claim shall be
deposited in the United States mail, certified or registered, with postage
prepaid, addressed to the Owner of said lot.
F. Any sale provided for above shall be conducted in accordance with
Section 2924, 2924b, and 2924c of the Civil Code of the State of California,
applicable to the exercise of powers of sale in mortgages and deeds of trust, or
in any other manner permitted or provided by law. Orchard or Declarant shall
have the power to bid on the lot at the foreclosure sale, and to acquire and
hold, mortgage and convey the same.
G. Upon the timely curing of any default for which a notice of claim of
lien was recorded by Orchard, it is hereby authorized to file or record, as the
case may be, an appropriate release of such notice, upon payment by the
defaulting Owner of a fee to be determined by Orchard but not to exceed Fifty
Dollars ($50.00), to cover the costs of preparing and filing or recording such
release together with the payment of such other costs, interest or fees as shall
have been incurred.
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H. The assessment lien and the rights to foreclosure and sale hereunder
shall be in addition to and not in substitution for all other rights and
remedies which Declarant may have hereunder, at law or in equity.
7.3 RESULT OF VIOLATION: The result of every action or omission whereby the
provisions of this Declaration are violated in whole or in part is hereby
declared to be and to constitute a nuisance, and every remedy allowed by law or
equity shall be available to any Owner of any lot within the Orchard Bayshore
Centre.
7.4 ATTORNEY'S FEES: In any legal or equitable action or proceeding for the
enforcement of the provisions of this Declaration, whether it be an action for
damages, declaratory relief or injunctive relief, the losing party or parties
shall pay the attorneys' fees of the prevailing party or parties, in such
reasonable amount as may be fixed by the court in such proceedings or in a
separate action brought for that purpose. The prevailing party shall be entitled
to said attorneys' fees even though the action or proceeding is settled or
compromised prior to judgment.
7.5 REMEDIES CUMULATIVE: All remedies provided herein, or at law or in
equity, shall be cumulative and not exclusive.
7.6 WAIVER: Failure by the Approving Agent to enforce the provisions of
this Declaration shall in no event be deemed a waiver of the right to the
Approving Agent to do so thereafter, nor of the right to enforce any other
covenants or restrictions herein, nor of the rights of other Owners of property
within the Orchard Bayshore Centre to enforce same.
ARTICLE 8
DURATION, MODIFICATION AND REPEAL
8.1 DURATION OF RESTRICTIONS: These Restrictions shall continue and remain
in full force and effect at all times with respect to all property, and each
part thereof, now or hereafter made subject to these Restrictions (subject,
however, to the right to amend and repeal as provided herein) until January 1,
2015.
8.2 TERMINATION AND MODIFICATION: This Declaration or any provision
thereof, or any covenant, condition or restriction contained herein, may be
terminated, extended, modified or amended, as to the whole of the Orchard
Bayshore Centre, upon the written consent of the Owners of sixty-six and
two-thirds percent (66-2/3%) of the totoal square footage of the land area
contained within the Orchard Bayshore Centre (exclusive of dedicated public
streets); provided, however, that so long as Orchard or Declarant or Declarant's
Successor (as defined in paragraph 1.5.A) is the Approving Agent, no such
termination, extension, modification or amendment shall be effective without the
written approval of Orchard or Declarant or Declarant's Successor, as the case
may be. No such termination, extension, modification or amendment shall be
effective until a proper instrument in writing describing such termination,
extension, modification or amendment has been executed by the requisite number
of Owners and by Orchard or Declarant or Declarant's Successor, if so required,
and recorded.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 CONSTRUCTIVE NOTICE AND ACCEPTANCE: Every person who now or hereafter
owns, occupies or acquires any right, title or interest in or to any portion of
the property subject to these Restrictions shall conclusively be deemed to have
consented and agreed to every covenant, condition and restriciton contained
herein, whether or not any reference to this Declaration is contained in the
instrument by which such person acquired an interest in said property.
9.2 WAIVER OF LIABILITY: Neither the Declarant nor the Approving Agent
shall be liable to any Owner, lessee, licensee or occupant of any land subject
to this Declaration by reason of any
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mistake in judgment, negligence, nonfeasance, action or inaction on the part of
the Declarant or the Approving Agent, or for the enforcement or failure to
enforce any provision of this Declaration. Every Owner, lessee, licensee or
occupant of any of said property, by acquiring his interest therein, agrees that
he will not bring any action or suit against Orchard or Declarant or Declarant's
Successor, as the case may be, or any other Approving Agent to recover any such
damages from or to seek equitable relief against the Declarant or the Approving
Agent by reason of the same.
9.3 RIGHTS OF MORTGAGEE: No breach of the Restrictions and other provisions
contained herein, or any enforcement thereof, shall defeat or render invalid the
lien of any mortgage or deed of trust now or hereafter executed upon any land
subject to these Restrictions; provided, however, that if any portion of said
property is sold under a foreclosure of any mortgage or under the provisions of
any deed of trust, any purchaser at such sale and his successors and assigns
shall hold any and all property so purchased subject to all of the Restrictions
and other provisions of this Declaration. Any notice of claim of lien recorded
pursuant to Paragraph 7.2 hereof shall take its priority vis-a-vis other
encumbrances as of the date of its recordation.
9.4 PARAGRAPH HEADINGS: Paragraph headings, where used herein, are inserted
for convenience only and are not intended to be a part of this Declaration or in
any way to define, limit or describe the scope and intent of the particular
paragraphs to which they refer.
9.5 EFFECT OF INVALIDATION: If any provision of this Declaration is held to
be invalid by any court of competent jurisdiction, the invalidity of such
provision shall not effect the validity of the remaining provisions hereof.
9.6 ASSIGNMENT AND DELEGATION: Declarant (or an Appointed Approving Agent
or Declarant's Successor as defined in Paragraphs 1.5.A and 1.5.B respectively)
and Orchard shall have no right to assign its rights granted hereunder as
Approving Agent nor to delegate its duties imposed hereunder as Approving Agent
except as specifically set forth in Article 1 of this Declaration.
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IN WITNESS WHEREOF, the undersigned have executed this Declaration the day
and year first above written.
NELO, a California general partnership
By /s/ David J. Brown
General Partner
By NEW ENGLAND MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation
General Partner
By COPLEY REAL ESTATE ADVISORS,
INC., asset manager and advisor
hereunto duly authorized
By /s/ Joseph W. O'Conner
President
ORCHARD INVESTMENT COMPANY NUMBER 901,
a California general partnership
By /s/ David J. Brown
General Partner
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STATE OF CALIFORNIA )
) SS.
COUNTY OF SANTA CLARA )
On January 25, 1985, before me, /s/ BETTY M. EILER a Notary Public in and
for said State, personally appeared David J. Brown, known to me or proved to me
on the basis of satisfactory evidence to be one of the general partners of NELO,
the partnership that executed the within instrument, and acknowledged to me that
such partnership executed the same.
WITNESS my hand and official seal
/s/ BETTY M. EILER
------------------
STATE OF CALIFORNIA )
) SS.
COUNTY OF SANTA CLARA )
On January 25, 1985, before me, /s/ BETTY M. EILER a Notary Public in and
for said State, personally appeared David J. Brown, known to me or proved to me
on the basis of satisfactory evidence to be one of the general partners of
ORCHARD INVESTMENT COMPANY NUMBER 901, the partnership that executed the within
instrument, and acknowledged to me that such partnership executed the same.
WITNESS my hand and official seal
/s/ BETTY M. EILER
------------------
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF SANTA CLARA )
On January 25, 1985, before me, Betty M. Eiler, a Notary Public in and for
said State, personally appeared JOSEPH W. O'CONNOR known to me or proved to me
on the basis of satisfactory evidence to be the President, of the corporation
that executed the within instrument, known to me on the basis of satisfactory
evidence to be the person who executed the within instrument on behalf of the
corporation therein named, and acknowledged to me that such corporation executed
the within instrument pursuant to its by-laws or a resolution of its board of
directors.
WITNESS my hand and official seal.
/S/ Betty M. Eiler
<PAGE>
EXHIBIT F
WHEN RECORDED RETURN TO:
Elinora S. Mantovani, Esq.
WILSON, SONSINI, GOODRICH & ROSATI
Two PaloAlto Square, Suite 900
Palo Alto, California 94306
(415) 493-9300
FIRST SIGN CRITERIA
OF DECLARATION OF COVENANTS, CONDITIONS
AND RESTRICTIONS OF ORCHARD BAYSHORE CENTRE
THESE FIRST SIGN CRITERIA are made on the 25th day of January 1985 by
ORCHARD PROPERTIES, a California corporation. ("Orchard").
R E C I T A L S:
----------------
WHEREAS, NELO, a California general partnership, and ORCHARD INVESTMENT
COMPANY NUMBER 901, a California general partnership (collectively referred to
herein as "Declarant"), as the owners of all that real property located in the
City of San Jose, County of Santa Clara, California described in Exhibit "A"
attached hereto ("Orchard Bayshore Centre"), have executed, effective as of
8319764 January 25, 1985, that certain Declaration of Covenants, Conditions and
Restrictions of Orchard Bayshore Centre (the "CC&Rs") and caused the same to be
recorded on February 5, 1985 in the official records of Santa Clara County,
California, as Instrument Number ______________; and
WHEREAS, the CC&Rs provide, among other things, that from time to time the
"Approving Agent", as defined in Paragraph 1.5 of the CC&Rs, may enact sign
criteria to affect all property located in Orchard Bayshore Centre; and
WHEREAS, Orchard is the Approving Agent under the CC&Rs and desires to
enact these First Sign Criteria in order (i) to assist lot owners in preparation
of their graphic design and (ii) to set forth minimum requirements for signs to
be placed on or in lots located within Orchard Bayshore Centre, with the
understanding that these First Sign Criteria are minimum requirements only and
that so long as there exists an Approving Agent, as defined in the CC&Rs, then
prior to installation or placement of any sign upon any lot(s) in Orchard
Bayshore Centre, the then serving Approving Agent must approve a sign plan
related thereto, as more specifically provided in the CC&Rs.
NOW, THEREFORE, Orchard, as Approving Agent, herein enacts these First Sign
Criteria.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS: For purposes of these First Sign Criteria the following
terms shall have the following definitions:
A. "Frontage Setback Area" shall be as defined in Paragraph 4.3 of
the CC&Rs.
B. "Street" shall be as defined in Paragraph 1.13 of the CC&Rs.
C. "Structures" shall be as defined in Paragraph 1.6 of the CC&Rs.
D. "Owner" shall be as defined in Paragraph 1.10 of the CC&Rs.
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E. "Sign" shall be as defined in Paragraph 1.12 of the CC&Rs.
F. "Visible from a public street" shall mean, with respect to any
given sign, that such sign is or would be visible to a person six
(6) feet tall having 20/20 vision and standing on any part of
such public street at an elevation no greater than the elevation
of the base of the sign being viewed.
ARTICLE 2
MINIMUM CRITERIA FOR SIGNS
2.1 LOCATION: Any sign permitted to be placed upon a lot within Orchard
Bayshore Centre shall be located in the frontage setback area of such lot, and
only in such frontage setback area; provided, that no part of any such sign
shall be less than ten (10) feet from the public street right of way line
adjacent to such frontage setback area. In determining the location of such sign
within a frontage setback area, the location of any meandering sidewalk, jogging
path and landscaping contained within said frontage setback area shall be
considered. No signs shall be permitted to be placed upon any structure located
on a lot within Orchard Bayshore Centre; provided, that if multiple users occupy
such structure then the location of each such user in the structure may be
designated by means of a master sign plan which has been previously approved by
the then serving Approving Agent.
2.2 NUMBER OF SIGNS: The number of signs permitted on any site within
Orchard Bayshore Centre shall be as follows:
(a) One (1) User One (1) sign face not to exceed
One (1) Building Forty (40) square feet in area,
One (1) Street Frontage
(b) One (1) User One (1) sign face not to exceed
One (1) Building forty (40) square feet in area,
More than one (1) Street or one (1) sign face per street
Frontage frontage not to exceed twenty (20)
square feet in area.
(c) One (1) User One (1) sign face not to exeed
More than one (1) Building forty (40) square feet in area per
More than one (1) Street street frontage, or one (1)
Frontage sign per building not to exeed
twenty (20) square feet in area,
with an aggregate of not more than
forty (40) square feet of sign face
area per street frontage.
(d) One (1) User One (1) sign face not to exceed
More than one (1) Building forty (40) square feet in area,
One (1) Street Frontage or one (1) sign face per building
not to exceed twenty (20) square
feet in area.
(e) More than one (1) User One (1) sign face not to exceed
One (1) Building forty (40) square feet in area,
One (1) Street Frontage with spaces of equal sizes for
multiple identificaiton, or one (1)
sign face per tenant not to exceed
(20) square feet in area.
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(f) More than one (1) User One (1) sign face per street
One (1) Building frontage not to exceed forty (40)
More than one (1) square feet in area with spaces of
Street Frontage equal size for multiple
identificaiton, or one (1) sign face
per tenant per street frontage not
to exceed twenty (20) square feet in
area.
2.3 DIMENSION OF PERMITTED SIGNS: No sign face permitted hereunder shall
have a total area in excess of forty (40) square feet, nor shall any single
dimension in any such sign exceed twelve (12) feet. No portion of any such sign
shall extend more than six (6) feet above the ground level as measured
perpendicular from the high point of any such sign.
2.4 MECHANICAL DEVICES:
A. All portions of any sign installed within Orchard Bayshore Centre
shall be stationary, and no sign nor any portion thereof shall revolve, rotate
or move, or create the illusion of revolution, rotation or movement.
B. Any sign installed in Orchard Bayshore Centre may be internally
illuminated or may be illuminated by fixtures concealed within the structure of
such sign; provided, however, that any such internal illumination or concealed
fixtures shall first be approved by the Approving Agent, in its sole discretion.
There shall not be any exterior spotlighting or other illumination on any sign
installed in Orchard Bayshore Centre.
2.5 CONTENTS OF SIGN: Any sign located on any lot within Orchard Bayshore
Centre shall contain the business name of the entity occupying said lot, and, in
the case of buildings occupied by a single tenant, may also contain the logo of
said tenant; and no other name, lettering, logo, trademark or copy shall be
permitted on any such sign. Copy shall be permitted only upon two sides of any
sign permitted hereunder. In the event more than one business occupies any lot
within Orchard Bayshore Centre, then the location of such multiple occupants
shall be designated by means of a master sign plan approved by the then serving
Approving Agent.
2.6 SIGN MATERIAL: Each sign placed upon a lot located within Orchard
Bayshore Centre shall be constructed of materials which will:
A. Complement and harmonize with the materials used in any structure
located on such lot and with structures located on adjacent lots; and
B. Resist the impact of weather elements.
2.7 TEMPORARY SIGNS: The foregoing notwithstanding, during the period from
commencement of construction of a structure on any lot contained within Orchard
Bayshore Centre until completion of such structure, Declarant will provide at
its sole cost and expense one standard project identification sign (of a design
substantially as described in Exhibit "B" hereto) of sufficient size to describe
the proposed occupant of the structure under construction, the architect of such
structure, the contractor, the developer and the lender (or any portion of the
above named as selected by the owner). The owner of such lot shall pay for all
the graphic work and copy to place the above described information upon the sign
either (i) by installing his own copy, subject to previous approval by the then
serving Approving Agent, or (ii) by request to Declarant that Declarant prepare
and install such sign copy, in which event such owner shall promptly, upon
request therefor by Declarant, reimburse Declarant for all costs and expenses
incurred for such preparation and installation. The copy, size, dimensions and
location of such project identification sign shall be subject to prior approval
by the Approving Agent in its sole discretion. No other sign of any type
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shall be permitted on any lot located within Orchard Bayshore Centre during
construction of a structure on any such lot.
ARTICLE 3
COMPLIANCE AND APPROVAL
It is the intention of Orchard, as Approving Agent, in preparing these
First Sign Criteria to assist owners of lots located within Orchard Bayshore
Centre in the preparation of their graphic designs and to set minimum
requirements for signs to be located in Orchard Bayshore Centre. The Approving
Agent is not bound or required to approve signs which meet the criteria set
forth herein, it being understood that such criteria merely set forth the
minimum acceptable standards and that the Approving Agent has the right, in its
sole discretion, to require any proposed signs to meet more stringent
requirements than those contained herein. All sign plans submitted to the
Approving Agent, in addition to complying with the requirements contained
herein, must be approved in accordance with the terms of the CC&Rs and must meet
the requirements of applicable governmental authorities prior to installation on
any lot located within Orchard Bayshore Centre.
ARTICLE 4
MISCELLANEOUS
4.1 DURATION: These First Sign Criteria shall remain in full force and
effect until the first to occur of (i) amendment hereof pursuant to Paragraph
4.2 below, or (ii) at such time as no Approving Agent exists for Orchard
Bayshore Centre, or (iii) January 1, 2015.
4.2 AMENDMENT: These First Sign Criteria, or any provision hereof, may be
terminated, modified or amended from time to time upon execution and recordation
by the then serving Approving Agent of an instrument in writing describing such
termination, modification or amendment.
IN WITNESS WHEREOF, Orchard, as Approving Agent, has executed these First
Sign Criteria on the day first above written.
ORCHARD PROPERTIES
a California corporation
By: /s/ David J. Brown
------------------
Its: President
---------
4
<PAGE>
EXHIBIT G
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT is entered into as of the _________ day of ___________,
_____, by and between __________________, a _____________ (the "Beneficiary"),
________________, a __________ (the "Tenant") and ____________________, a
____________________ (the "Landlord").
W I T N E S S E T H
A. Tenant has entered into a certain lease dated __________,_____, (the
"Lease") with Landlord covering certain space (the "Premises") located in and
upon the real property described in SCHEDULE 1 attached hereto (the "Property");
B. Beneficiary is the holder of a mortgage loan (the "Loan") to Landlord in
the amount of __________ Dollars ($_________) which is secured by a
_____________________ (the "Deed of Trust") covering the property;
C. The parties hereto desire expressly to confirm the subordination of the
Lease to the lien of the Deed of Trust it being a requirement by Beneficiary
that the lien and charge of the Deed of Trust be unconditionally and at all
times prior and superior to the leasehold interests and estates created by the
Lease; and
D. Tenant has requested that Beneficiary agree not to disturb Tenant's
possessory rights in the Premises in the event Beneficiary should foreclose the
Deed of Trust, provided that Tenant is not in default under the Lease and
provided that Tenant attorns to Beneficiary or the purchaser at any foreclosure
of Trustee's sale of the Property.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and of other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. Notwithstanding anything to the contrary set forth in the Lease, the
Lease and the leasehold estate created thereby and all of Tenant's rights
thereunder shall be and shall at all times remain subject, subordinate to the
Deed of Trust and the lien thereof and all rights of Beneficiary thereunder and
to any and all renewals, modifications, consolidations, replacements and
extensions thereof.
2. Tenant hereby declares, agrees and acknowledges that:
A. Beneficiary would not have agreed to recognize the Lease without
this Agreement; and
B. Beneficiary, in making disbursements pursuant to the agreements
evidencing and securing the Loan, is under no obligation or duty to oversee or
direct the application of the proceeds of such disbursements and such proceeds
may be used by Landlord for purposes other than improvement of the Premises.
<PAGE>
3. In the event of foreclosure of the Deed of Trust, or upon a sale of the
Property pursuant to the Trustee's power of sale contained therein, or upon a
transfer of the Property by deed in lieu of foreclosure, then so long as Tenant
is not in default under any of the terms, covenants, or conditions of the Lease,
the Lease shall continue in full force and effect as a direct lease between the
succeeding owner of the Property and Tenant, upon and subject to all of the
terms, covenants and conditions of the Lease for the balance of the term of the
Lease. Tenant hereby agrees to attorn to and accept any such successor owner as
landlord under the Lease, and to be bound by and perform all of the obligations
imposed by the Lease, and Beneficiary or any such successor owner of the
Property will not disturb the possession of Tenant, and will be bound by all of
the obligations imposed by the Lease upon the landlord thereunder; provided,
however, that the Beneficiary, or any purchaser at a trustee's or sheriff's sale
or any successor owner of the Property shall not be:
A. liable for any act or omission of a prior landlord (including
Landlord); or
B. subject to any offsets or defenses which the Tenant might have
against any prior landlord (including Landlord); or
C. bound by any rent or additional rent which the Tenant might have
paid in advance to any prior landlord (including Landlord) for a period in
excess of one month; or
D. bound by any agreement or modification of the Lease made without the
written consent of the Beneficiary, or
E. liable or responsible for or with respect to the retention,
application and/or return to Tenant or any security deposit paid to any prior
lessor (including Landlord), whether or not still held by such prior lessor,
unless and until Beneficiary or such other purchaser has actually received for
its own account as lessor the full amount of such security deposit; or
F. bound by or liable under any representations, warranties, covenants
or indemnities made to Tenant by any prior landlord (including Landlord)
regarding Hazardous Materials (as defined in the Lease); or
G. obligated to construct the building in which the Premises are
located or any improvements for Tenant's use.
4. Upon the written request of Beneficiary at the time of a foreclosure,
Trustee's sale or deed in lieu thereof or at any time thereafter, the parties
agree to execute a lease of the Premises upon the same terms and conditions as
the Lease between Landlord and Tenant, which lease shall cover any unexpired
term of the Lease existing prior to such foreclosure. Trustee's sale or
conveyance in lieu of foreclosure.
5. Tenant agrees to give to Beneficiary, by registered mail, a copy of any
notice or statement served upon Landlord. Tenant agrees not to exercise any
rights of termination available by virtue of a default unless (i) Landlord shall
have failed to cure such default, and (ii) following expiration of the
applicable period under the Lease for cure by Landlord of such default. Tenant
shall have furnished to Beneficiary notice of Landlord's failure to cure such
default and afforded Beneficiary an additional thirty (30) days following
receipt of such notice within which to cure such default, or if such default
cannot be cured within that time, then such additional time as may be necessary
if within such thirty (30) days Beneficiary has commenced and is diligently
pursuing the remedies necessary to cure such default (including, but not limited
to, commencement of foreclosure proceedings if necessary to effect such cure),
in which event such right, if any, as Tenant might otherwise have to terminate
the Lease shall not be exercised while such remedies are being so diligently
pursued.
<PAGE>
6. Landlord, as landlord under the Lease and trustor under the Deed of
Trust, agrees for itself and its heirs, successors and assigns, that: (i) this
Agreement does not constitute a waiver by Beneficiary of any of its rights under
the Deed of Trust, or in any way release Landlord from its obligation to comply
with the terms, provisions, conditions, covenants, agreements and clauses of the
Deed of Trust; and (ii) the provisions of the Deed of Trust remain in full force
and effect and must be complied with by Landlord, if Beneficiary so requires.
7. Tenant acknowledges that it has notice that the Lease and the rent and
all other sums due thereunder have been assigned or are to be assigned to
Beneficiary as security for the Loan secured by the Deed of Trust. In the event
that Beneficiary notifies Tenant of a default under the Deed of Trust and
demands that Tenant pay its rent and all other sums due under the Lease to
Beneficiary, Tenant agrees that it will honor such demand and pay its rent and
all other sums due under the Lease directly to the Beneficiary or as otherwise
required pursuant to such notice.
8. All notices hereunder shall be deemed to have been duly given if mailed
by United States registered or certified mail, with return receipt requested,
postage prepaid, to Beneficiary at the following address (or at such other
address as shall be given in writing by Beneficiary to the Tenant) and shall be
deemed complete upon any such mailing:
_____________________.
_____________________.
_____________________.
_____________________.
Attention: _____________________.
with a copy to: _____________________.
_____________________.
_____________________.
_____________________.
9. This Agreement supersedes any inconsistent provision of the Lease.
10. This agreement shall insure to the benefit of the parties hereto, their
successors and permitted assigns; provided however, that in the event of the
assignment or transfer of the interest of Beneficiary, all obligations and
liabilities of Beneficiary under this Agreement shall terminate, and thereupon
all such obligations and liabilities shall be the responsibility of the party to
whom Beneficiary's interest is assigned or transferred.
11. Tenant agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance
agreement.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first set forth above.
"Beneficiary": "Landlord":
________________________, ___________________________,
a _____________________ a ________________________
By:_____________________ By:________________________
Printed Printed
Name:___________________ Name:______________________
Title:__________________ Title:_____________________
"Tenant"
_______________________________,
a _____________________________
By:____________________________
Printed
Name:_____________________
Title:____________________
<PAGE>
EXHIBIT H
Orchard Plaza
2290 North First Street, Suite 300
San Jose, California 95131
(408) 922-0400
FAX (408) 922-0157
TO: PROSPECTIVE TENANT
FROM: ORCHARD PROPERTIES
SUBJECT: HAZARDOUS MATERIALS QUESTIONNAIRE AS IT RELATES
CALIFORNIA HEALTH AND SAFETY CODE
SECTIONS 25503.5 AND 25503.6
California Health and Safety Code Section 25503.5 requires any business which
handles Hazardous Materials in excess of certain limits to establish a business
plans for emergency response to a release or threatened release of Hazardous
Materials. Health and Safety Code Section 25503.6 specifies that any business
which is required under Section 25503.5 to establish and implement a business
plan and is located on leased property is required to notify the owner in
writing that the business is subject to Section 25503.5 and to provide a copy of
the business plan to the owner within five working days after receiving a
request from the owner or owner's agent for a copy.
The purpose of this letter is to request that you either verify that you are not
subject to Health and Safety Code Sections 25503.5 and 25503.6 or that you
provide the information required to be provided by those Sections by:
1. Completing the attached acknowledgment;
2. Completing the attached questionnaire;
3. If you are a reporting company, attaching a copy
of your hazardous materials management plan.
If you have questions as to your own specific requirements, please contact the
local fire department to assess your use.
Sincerely,
ORCHARD PROPERTIES
/s/ Byron/MG
R. Byron Woodworth
Vice President
Marketing
<PAGE>
ACKNOWLEDGMENT
THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One):
x Does not use any hazardous materials other than minor amounts
------- of reproduction and janitorial chemicals consistent with
routine office uses. (No need to fill out the attached
Hazardous Materials Questionnaire.)
Does not use hazardous Materials in a manner or in a quantity
------- requiring the preparation of a hazardous material management
plan or any other documents under California Health and Safety
Code Section 25503.5. (Please fill out the attached Hazardous
Materials Questionnaire.)
Uses only those chemicals identified in the attached
------- questionnaire in accordance with the provisions of the
attached hazardous materials management plan, which has been
approved by the Fire Department of the City of __________ and
is in full force and effect. (Please fill out the attached
Hazardous Materials Questionnaire and attach copy of your
Hazardous Materials Management Plan.)
THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS TO THE
PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS
MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL
OF HAZARDOUS MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS MATERIALS ONLY BY
(1) DISCHARGE TO APPROPRIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK
IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2)
DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned
company has executed this acknowledgment as of the date written below.
Clarify Inc.
- ------------------------------
(Company Name)
a Delaware corporation
- ------------------------------
By: /s/ Ray M. Fritz
- ------------------------------
Chief Financial Officer and Vice President of Finance
- -----------------------------------------------------
(Title)
EXHIBIT 11.1
<TABLE>
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Weighted average number of common shares
outstanding ....................................... 20,531 19,562 20,421 19,150
Common equivalent shares of restricted stock
subject to repurchase ............................. 245 391 247 442
Common equivalent shares assuming conversion
of stock options ................................. 968 1,628 1,271 1,600
------- ------- ------- -------
Shares used in computing per share amounts .......... 21,744 21,581 21,939 21,192
======= ======= ======= =======
Net income .......................................... $ 1,018 $ 1,262 $ 2,971 $ 2,130
======= ======= ======= =======
Net income per share (1) ............................ $ 0.05 $ 0.06 $ 0.14 $ 0.10
======= ======= ======= =======
<FN>
(1) There is no difference between primary and fully diluted net income per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,671
<SECURITIES> 8,140
<RECEIVABLES> 20,008
<ALLOWANCES> 774
<INVENTORY> 0
<CURRENT-ASSETS> 58,970
<PP&E> 13,281
<DEPRECIATION> 4,549
<TOTAL-ASSETS> 71,915
<CURRENT-LIABILITIES> 20,200
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 51,713
<TOTAL-LIABILITY-AND-EQUITY> 71,915
<SALES> 25,454
<TOTAL-REVENUES> 38,789
<CGS> 1,011
<TOTAL-COSTS> 9,142
<OTHER-EXPENSES> 25,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (692)
<INCOME-PRETAX> 4,717
<INCOME-TAX> 1,746
<INCOME-CONTINUING> 2,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,971
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
