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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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)
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<S> <C>
DELAWARE 77-0259235
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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2125 O'NEL DRIVE
SAN JOSE, CALIFORNIA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(408) 573-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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HTTP://WWW.CLARIFY.COM
(REGISTRANT'S HOME PAGE ON THE INTERNET)
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Indicate by check mark 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 October 30, 1998 there were 22,041,425 shares of the Registrant's
$0.0001 par value Common Stock outstanding.
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CLARIFY INC.
FORM 10-Q
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997.................... 3
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 1998 and
1997........................................................ 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997....... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item Management's Discussion and Analysis of Financial Condition
2. and Results of Operations................................... 8
PART II. OTHER INFORMATION
Item
5... Other Information........................................... 20
Item
6. Exhibits and Reports on Form 8-K............................ 21
SIGNATURE........................................................... 23
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CLARIFY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
ASSETS
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
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Current assets:
Cash and cash equivalents................................. $ 38,259 $20,744
Short-term investments.................................... 2,407 10,451
Accounts receivable, net of allowance for doubtful
accounts of $1,980 at September 30, 1998 and $1,310 at
December 31, 1997...................................... 36,765 32,854
Prepaid expenses and other current assets................. 2,683 2,463
Deferred income taxes..................................... 5,692 5,692
-------- -------
Total current assets.............................. 85,806 72,204
Property and equipment, net................................. 8,909 8,611
Long-term investments....................................... 7,019 5,167
Other noncurrent assets..................................... 1,792 849
======== =======
Total assets...................................... $103,526 $86,831
======== =======
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payables......................................... $ 4,722 $ 5,047
Accrued payroll and related accruals...................... 9,005 6,833
Other accrued liabilities................................. 6,094 4,269
Income taxes payable...................................... 2,357 1,851
Deferred revenue.......................................... 17,970 11,734
-------- -------
Total current liabilities......................... 40,148 29,734
-------- -------
Stockholders' equity:
Common stock, $.0001 par value:
Authorized: 55,000 shares; issued and outstanding:
21,767 at September 30, 1998 and 21,335 at December
31, 1997.............................................. 2 2
Capital in excess of par value............................ 54,080 51,640
Unrealized holding gain on investments, net............... 21 22
Cumulative translation adjustment......................... 4 6
Deferred compensation..................................... (30) (65)
Retained earnings......................................... 9,301 5,492
-------- -------
Total stockholders' equity........................ 63,378 57,097
======== =======
Total liabilities and stockholders' equity........ $103,526 $86,831
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
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Revenues:
License fees...................................... $22,480 $13,946 $58,236 $39,400
Services.......................................... 11,977 7,945 30,946 21,280
------- ------- ------- -------
Total revenues............................ 34,457 21,891 89,182 60,680
Cost of revenues:
License fees...................................... 477 585 1,592 1,596
Services.......................................... 6,974 4,753 18,392 12,884
------- ------- ------- -------
Total cost of revenues.................... 7,451 5,338 19,984 14,480
------- ------- ------- -------
Gross Margin.............................. 27,006 16,553 69,198 46,200
------- ------- ------- -------
Operating expenses:
Product development and engineering............... 4,987 4,434 14,691 11,807
Sales and marketing............................... 16,827 9,811 42,348 24,977
General and administrative........................ 2,413 2,203 7,149 5,286
------- ------- ------- -------
Total operating expenses.................. 24,227 16,448 64,188 42,070
------- ------- ------- -------
Operating income.......................... 2,779 105 5,010 4,130
Interest and other income, net...................... 409 360 1,036 1,052
------- ------- ------- -------
Income before provision for income taxes.......... 3,188 465 6,046 5,182
Provision for income taxes.......................... 1,180 172 2,237 1,918
------- ------- ------- -------
Net income................................ $ 2,008 $ 293 $ 3,809 $ 3,264
======= ======= ======= =======
Basic net income per share.......................... $ 0.09 $ 0.01 $ 0.18 $ 0.16
======= ======= ======= =======
Shares used in per share computation -- basic....... 21,739 21,084 21,574 20,674
======= ======= ======= =======
Diluted net income per share........................ $ 0.09 $ 0.01 $ 0.17 $ 0.15
======= ======= ======= =======
Shares used in per share computation -- diluted..... 22,108 22,269 22,147 21,968
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
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Cash flows from operating activities:
Net income................................................ $ 3,809 $ 3,264
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 4,041 2,836
Provision for doubtful accounts........................ 1,520 --
Other.................................................. 71 338
Changes in assets and liabilities:
Accounts receivable.................................. (4,589) (5,378)
Prepaids and other current assets.................... (128) (1,019)
Accounts payable..................................... (340) 1,688
Accrued payroll and related accruals................. 2,121 1,750
Other accrued liabilities............................ 2,301 2,564
Deferred revenue..................................... 5,519 (4,024)
-------- --------
Net cash provided by operating activities.............. 14,325 2,019
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (4,395) (4,078)
Proceeds from disposal of property and equipment.......... -- 267
Purchase of investments................................... (11,170) (22,695)
Sale and maturities of investments........................ 17,290 8,492
Increase in other assets.................................. (970) 84
-------- --------
Net cash provided by (used in) investing activities.... 755 (17,930)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............... 2,440 1,899
-------- --------
Net cash provided by financing activities.............. 2,440 1,899
-------- --------
Effect of foreign exchange rate changes on cash............. (5) 72
-------- --------
Net increase (decrease) in cash and cash equivalents........ 17,515 (13,940)
Cash and cash equivalents, beginning of period.............. 20,744 34,477
-------- --------
Cash and cash equivalents, end of period.................... $ 38,259 $ 20,537
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 6 $ 1
======== ========
Cash paid during the year for taxes....................... $ 1,731 $ 94
======== ========
Supplemental disclosure of non-cash investing and financing
activities:
Change in unrealized holding gain on investments, net..... $ (1) $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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CLARIFY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated balance sheets of Clarify
Inc. and its subsidiaries ("Clarify" or the "Company") as of September 30, 1998
and December 31, 1997 and the related unaudited condensed consolidated
statements of operations and cash flows for the nine months ended September 30,
1998 and 1997 have been prepared on substantially the same basis as the annual
consolidated financial statements. The December 31, 1997 balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The results of operations
for the three months and nine months ended September 30, 1998 are not
necessarily indicative of results to be expected for the entire year.
For software arrangements entered into after December 31, 1997, the Company
recognizes revenue in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition." SOP 97-2 supercedes SOP 91-1 "Software Revenue
Recognition" and requires that if an arrangement to deliver software or a
software system does not require significant production, modification, or
customization of software, then revenue should be recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the vendor's fee is
fixed or determinable, and collectibility is probable. Accordingly, the Company
will generally recognize license fee revenue upon product shipment provided
there are no contingencies and collection is probable.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position, operating results and cash flows
for those periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These unaudited condensed consolidated financial statements should be read in
conjunction with the Company's 1997 Annual Report on Form 10-K.
NOTE 2. COMPREHENSIVE INCOME
Comprehensive income as defined by Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," is net income plus direct
adjustments to stockholders' equity.
The following table reconciles comprehensive income to reported net income
(in thousands):
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THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- ----------------
COMPREHENSIVE INCOME: 1998 1997 1998 1997
--------------------- ------ ---- ------ ------
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Net income............................................... $2,008 $293 $3,809 $3,264
Cumulative translation adjustment...................... $ (246) $ 46 (2) 28
Unrealized holding gains on investments, net of tax.... $ 4 $ -- (1) --
------ ---- ------ ------
Total comprehensive income..................... $1,766 $339 $3,806 $3,292
====== ==== ====== ======
</TABLE>
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CLARIFY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3. COMPUTATION OF NET INCOME PER SHARE
Basic net income per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the weighted average common shares and common equivalent shares
outstanding during the period. The following table reconciles the numerator and
denominator used in the computation of basic and diluted net income per share
(in thousands, except per share amounts):
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THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
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Numerator -- Basic and Diluted
Net income.......................................... $ 2,008 $ 293 $ 3,809 $ 3,264
------- ------- ------- -------
Net income available to common stockholders......... $ 2,008 $ 293 $ 3,809 $ 3,264
======= ======= ======= =======
Denominator
Weighted average common shares outstanding.......... 21,739 21,084 21,574 20,674
Effective of dilutive common stock options.......... 369 1,185 573 1,294
------- ------- ------- -------
Weighted average common shares and equivalents
outstanding....................................... 22,108 22,269 22,147 21,968
======= ======= ======= =======
Diluted net income per share........................ $ 0.09 $ 0.01 $ 0.17 $ 0.15
======= ======= ======= =======
</TABLE>
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the FASB issued Statements of Accounting Standards No. 131
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related
Information", which requires companies to report certain information about
operating segments, including certain information about their products,
services, the geographic area in which they operate and their major customers.
This statement supersedes FASB Statements Nos. 14, 18, 24 and 30. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company has adopted the provisions of SFAS No. 131 and,
accordingly, has elected not to provide separate quarterly segmental
disclosures.
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, and for hedging activities. It requires
that an entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
Management has not yet evaluated the effects of this change on its operations.
SFAS No. 133 will be effective for the Company's fiscal year 2000. Management
believes that this Statement will not have a significant impact on the Company.
NOTE 5. HEDGING OF INTERCOMPANY BALANCES
In June 1998, the Company initiated hedging activities to mitigate the
impact of foreign exchange rate changes on intercompany balances. The Company is
using foreign exchange forward contracts as a vehicle for hedging these
intercompany balances. A forward foreign exchange contract obligates the Company
to exchange predetermined amounts of specified foreign currencies at specified
exchange rates on stipulated future dates and to make or receive an equivalent
U.S. dollar payment equal to the value of such exchange. Realized and unrealized
gains and losses resulting from changes in the spot exchange rate (including
those from open, matured, and terminated contracts) are included in other
income. These gains and losses offset gains and losses on intercompany balances,
which are also included in other income, net. The related amounts due to or from
counter parties are included in other assets or other liabilities. As of
September 30, 1998, the Company had $8.0 million of forward foreign exchange
contracts outstanding, consisting of Japanese yen, German marks, French francs,
Australian dollars and British pounds, all maturing within 30 days.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially. Factors that might cause or contribute to
such differences include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" and "Certain Factors That May Affect Future
Results of Operations" in the Company's 1997 annual report on Form 10-K. Readers
should carefully review the risks described in other documents the Company files
with the Securities and Exchange Commission, including the annual report on Form
10-K and the quarterly reports on Form 10-Q. Readers are cautioned not to place
undue reliance on the forward-looking statements, including statements regarding
the Company's expectations, beliefs, intentions or strategies regarding the
future, which speak only as of the date of this report on Form 10-Q. The Company
undertakes no obligation to publicly release any revisions to forward-looking
statements or reflect events or circumstances after the date of this document.
OVERVIEW
Clarify Inc. ("Clarify" or the "Company"), founded in August 1990, is a
leading developer and provider of integrated enterprise front office solutions.
Clarify helps companies build service into every customer interaction, with
solutions that automate call center, sales and marketing, technical support,
field service and logistics, quality assurance and help desk processes. By
uniting the entire virtual enterprise around the customer, Clarify allows
companies to attract, acquire and retain customers at significantly reduced
costs. A variety of industries employ Clarify's solutions, including high-tech,
health care, telecommunications, financial services and retail.
Clarify markets its software and services primarily through its direct
sales organization in the United States, the United Kingdom, Germany, France,
Canada, Japan, Australia and Singapore. Clarify customers include, among others,
ADP, Amoco Corp., Cisco Systems, General Electric, Georgia-Pacific, Gillette,
Hewlett-Packard, Microsoft and Sprint PCS. The Company maintains its executive
offices at 2125 O'Nel Drive, San Jose, California 95131.
In April 1996, the Company acquired Metropolis Software, Inc.
("Metropolis"), a sales force automation software provider. The Company issued
approximately 663,000 shares of common stock for all of the shares of common
stock of Metropolis in a transaction that was accounted for as a pooling of
interests. The Company also assumed options to purchase Metropolis stock that
remain outstanding as options to purchase the Company's common stock.
Substantially all of the business operations and employees of Metropolis have
been integrated with the business operations of the Company. The Company expects
to liquidate the remaining shell corporation of Metropolis during the fourth
quarter of 1998.
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PERCENT OF TOTAL REVENUES
The following table sets forth for the quarter and nine months ended
September 30, 1998 and September 30, 1997, the Company's Condensed Consolidated
Statements of Income expressed as a percentage of total revenues:
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THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1998 1997 1998 1997
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Revenues:
License fees.............................................. 65.2% 63.7% 65.3% 64.9%
Services.................................................. 34.8 36.3 34.7 35.1
----- ----- ----- -----
Total revenues.................................... 100.0 100.0 100.0 100.0
Cost of revenues:
License fees.............................................. 1.4 2.7 1.8 2.6
Services.................................................. 20.2 21.7 20.6 21.3
----- ----- ----- -----
Total cost of revenues............................ 21.6 24.4 22.4 23.9
----- ----- ----- -----
Gross Margin...................................... 78.4 75.6 77.6 76.1
Operating expenses:
Product development and engineering....................... 14.5 20.2 16.5 19.4
Sales and marketing....................................... 48.8 44.8 47.5 41.2
General and administrative................................ 7.0 10.1 8.0 8.7
----- ----- ----- -----
Total operating expenses.......................... 70.3 75.1 72.0 69.3
----- ----- ----- -----
Operating income.................................. 8.1 0.5 5.6 6.8
Interest and other income, net.............................. 1.2 1.6 1.2 1.7
----- ----- ----- -----
Income before provision for income taxes.......... 9.3 2.1 6.8 8.5
Provision for income taxes.................................. 3.4 0.8 2.5 3.1
----- ----- ----- -----
Net income........................................ 5.9% 1.3% 4.3% 5.4%
===== ===== ===== =====
</TABLE>
Revenues
Total revenues increased from $21.9 million in the third quarter of 1997 to
$34.5 million in the third quarter of 1998, representing an increase of 57%,
while total revenues increased from $60.7 million for the first nine months of
1997 to $89.2 million for the first nine months of 1998, representing an
increase of 47%. International revenues accounted for approximately 25% of total
revenues in the third quarter of 1998 compared to 7% in the third quarter of
1997. The absolute increases in total revenues are a result of growth in both
license fees and service revenues. The Company does not believe that the
percentage increases in revenues achieved should be anticipated in future
periods. The Company's revenues are derived primarily from license fees and
charges for services, including maintenance, consulting and training. 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 recognizes initial license fee revenue and sales
of additional licenses upon product shipment provided there are no contingencies
and collection is probable, in accordance with Statement of Position 97-2
entitled "Software Revenue Recognition." 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 generally do not require significant production, modification or
customization to the underlying software code.
License Fees. License fee revenues increased from $13.9 million in the
third quarter of 1997 to $22.5 million in the third quarter of 1998,
representing an increase of 62%. License fee revenues increased
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from $39.4 million for the first nine months of 1997 to $58.2 million for the
first nine months of 1998, representing an increase of 48%. The growth in
license fee revenues was due to further market acceptance of the Company's
existing products, continued enhancement and increased breadth of the Company's
product offerings, increased follow-on sales to existing customers, sales of the
Company's products to new industry segments and increased sales as a result of
the expansion of the Company's direct sales force and marketing organization.
The Company expects that license revenues will fluctuate as a percentage of
total revenues in the future depending on the timing of new product
introduction, customer buying patters, the Company's pricing actions,
competition, and other factors. Further, the Company does not believe that
license fee revenues in any one period are indicative of license fee revenues in
any future period.
Services. Revenues from services increased from $7.9 million in the third
quarter of 1997 to $12.0 million in the third quarter of 1998, representing an
increase of 52%. Service revenue increased from $21.3 million for the first nine
months of 1997 to $30.9 million for the first nine months of 1998, representing
an increase of 45%. The growth in service revenues was due primarily to an
increase in maintenance and maintenance renewals, and, to a lesser extent,
consulting and training services associated with increased sales of the
Company's applications. The Company expects revenues from services 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 decreased from $0.6 million in
the third quarter of 1997 to $0.5 million in the third quarter of 1998,
representing a decrease of 17%. Cost of license fees for the third quarter of
1997 and 1998 represents 4% and 2% of license fee revenues, respectively. Cost
of license fees for the first nine months of both 1997 and 1998 was $1.6
million, representing 4% and 3% of license fee revenues, respectively. 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 expense as incurred. Cost of
license fees includes no amortization of capitalized software development costs.
Cost of license fees as a percentage of license fees may fluctuate from period
to period due to the increased or decreased sale of royalty bearing software
products.
Cost of Services. Cost of services increased from $4.8 million in the third
quarter of 1997 to $7.0 million in the third quarter of 1998, representing 61%
and 58% of the related service revenues for the quarters ended September 30,
1997 and 1998, respectively. Cost of services increased from $12.9 million for
the first nine months of 1997 to $18.4 million for the first nine months of
1998, representing 61% and 60% of the related total service revenues,
respectively. Cost of services consists primarily of costs incurred in providing
telephone support, consulting services, shipment of product upgrades and
training of customers. The absolute dollar 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. 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 $4.4 million in the third quarter of 1997 to $5.0
million in the third quarter of 1998, representing 20% and 15% of total
revenues, respectively. Total product development and engineering expenses
increased from $11.8 million for the first nine months of 1997 to $14.7 million
for the first nine months of 1998, representing 19% and 17% of total revenues,
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 as well as consulting expenses. The Company currently
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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.
Sales and Marketing. Sales and marketing expenses increased from $9.8
million in the third quarter of 1997 to $16.8 million in the third quarter of
1998, representing 45% and 49% of total revenues, respectively. Sales and
marketing expenses increased from $25.0 million for the first nine months of
1997 to $42.3 million for the first nine months of 1998, representing 41% and
48% 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 expenditures for
marketing activities. The increase in sales and marketing expenses as a
percentage of total revenues for the third quarter of 1998 compared to the third
quarter of 1997 reflects the significant investment that the Company made to
expand its direct sales force and other distribution channels, as well as
investments made for various marketing programs and activities. 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.
General and Administrative. General and administrative expenses increased
from $2.2 million in the third quarter of 1997 to $2.4 million in the third
quarter of 1998, representing 10% and 7% of total revenues, respectively.
General and administrative expense increased from $5.3 million for the first
nine months of 1997 to $7.1 million for the first nine months of 1998,
representing 9% and 8% of total revenues, respectively. General and
administrative expense consists principally of salaries and benefits, travel
expenses, and related overhead costs for the finance, human resource and
executive and administrative personnel of the Company. The increase in dollar
amount was due primarily to increases in personnel, related overhead costs,
reserves for bad debt, and expenses related to the Company's infrastructure
expansion. The Company currently expects general and administrative expenses to
increase in absolute dollars in the future as the Company continues to expand
its infrastructure.
Interest and Other Income, Net. Interest and other income, net, represents
interest income earned on the Company's cash, cash equivalents and investments,
and other items including foreign exchange gains and losses. Interest and other
income, net, increased to $409,000 in the third quarter of 1998 from $360,000 in
the third quarter of 1997.
Provision for Income Taxes. The Company's effective tax rate for the third
quarters of 1997 and 1998 was 37%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments totaled $47.7 million
at September 30, 1998 representing approximately 46% of total assets compared to
$36.4 million at December 31, 1997, representing approximately 42% of total
assets. The Company has invested its cash in excess of current operating
requirements in a portfolio of both taxable and tax-exempt investment grade
securities. The investments have variable and fixed interest rates and short and
long term maturities. In accordance with Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" such investments are classified as "available for sale."
Net cash provided by operating activities was $2.0 million in the first
nine months of 1997 compared to $14.3 million for the first nine months of 1998.
Net cash provided by operating activities for the nine months ended September
30, 1998 was primarily attributable to net income and an increase in other
accrued liabilities, deferred revenue and accrued payroll and related accruals,
offset primarily by an increase in accounts receivable, after adjustment for the
provision of doubtful accounts, depreciation and amortization expense.
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The change in accounts receivable corresponds to the overall growth in
customer licensing activity offset by cash collections. Accounts receivable days
sales outstanding ("DSO"), the ratio of the quarter-end accounts receivable
balance to quarterly revenues, multiplied by 90, was 96 days as of September 30,
1998 compared to 107 days as of December 31, 1997 and 94 days as of September
30, 1997. Since much of the Company's contracting activity is concentrated
toward the end of each quarter and the Company provides extended payment terms
to certain credit worthy customers, the Company believes that its DSO may be
elevated in future periods.
Net cash provided by investing activities was $0.8 million in the first
nine months of 1998. Net cash used in investing activities was $17.9 million in
the first nine months of 1997. Included in these totals are the sales and
maturities of investments, partially offset by purchases of long and short-term
investments and by the acquisition of property and equipment.
Net cash provided by financing activities consisted primarily of proceeds
from the issuance of common stock pursuant to the Company's Employee Stock
Purchase Plan and the exercise of options granted under the Company's 1991 and
1995 Stock Option/Stock Issuance Plans.
The Company believes that cash generated from operations and its existing
cash, cash equivalents and 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.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
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 and in the Company's 1997 annual report on Form 10-K.
Limited Operating History; Limited and Variable Profitability
The Company was founded in August 1990 and did not begin shipping products
until September 1992. The Company has experienced substantial revenue growth in
recent years, but its profitability, as a percentage of net revenues, has varied
widely on a quarterly and annual basis, including net operating losses in each
fiscal year from inception through 1994. Due to the Company's limited operating
history on a significant international scale, the rate of growth of the
Company's business and the variability of operating results in past periods,
there can be no assurance that the Company's revenues will continue at the
current level or will grow, or that the Company will be able to sustain
profitability on a quarterly or annual basis.
Variability of Quarterly Operating Results
The Company's net revenues and operating results can vary, sometimes
substantially, from quarter to quarter. In general, the Company's revenues, and
in particular license fees, are relatively difficult to forecast for a number of
reasons, including (i) the size and timing of individual license transactions,
(ii) the level of price and product competition, (iii) demand for the Company's
products, (iv) the potential for deferral or delay of customer implementations
of the Company's software, (v) the timing of the introduction of new products or
product enhancements by the Company or its competitors, (vi) changes in customer
budgets, (vii) changes in pricing policies by the Company or its competitors,
and (viii) seasonality of technology purchases and other general economic
conditions.
The Company's software products generally are shipped as orders are
received. 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, license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. In addition, there has been and
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continues to be a trend toward larger enterprise license transactions, which can
have sales cycles of up to a year or more and require approval by a customer's
upper management. These transactions are typically difficult to manage and
predict. Failure to close any expected individually significant transactions
could cause the Company's revenues and operating results in a period to fall
short of expectations, and could result in losses. In addition, revenues in any
one quarter are not indicative of revenues in any future period.
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.
The Company's business has experienced and is expected to continue to
experience seasonality, in part due to customer buying patterns. In recent
years, for example, the Company has generally had weaker demand in the quarter
ending in March.
The foregoing factors make estimating quarterly revenue and operating
results prior to the end of a quarter uncertain. 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
substantial portion of the Company's expenses are relatively fixed in a given
quarter. 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. The Company plans to increase expenditures to fund
continued build-up and expansion of international operations, a larger worldwide
direct and indirect sales and marketing staff and related marketing
expenditures, development of new distribution and resale channels, greater
levels of research and development, and broader customer service and support
capability, although annual expenditures will depend upon ongoing results and
evolving business needs. To the extent such expenses precede or are not
subsequently followed by increased revenues, the Company's revenues, operating
results and financial condition would be materially adversely affected. 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.
Continued Volatility of Stock Price
In the past, the price of the Company's common stock has been volatile.
Future announcements concerning the Company or its competitors, quarterly
variations in operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies by the
Company or its competitors, proprietary rights or other litigation, changes in
earnings estimates by analysts or other factors could cause the market price of
the Company's common stock to fluctuate substantially, particularly on a
quarterly basis. In addition, stock prices for many technology companies
fluctuate widely for reasons which may be unrelated to operating results of such
companies. These fluctuations, as well as general economic, market and political
conditions such as international currency and stock market volatility,
recessions or military conflicts, may materially and adversely affect the market
price of the Company's common stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such companies. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
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Management of Growth
The Company has grown rapidly in the last three years. The growth of the
Company's business and the expansion of the Company's customer base has placed a
significant strain on the Company's management and operations. The Company's
recent growth and expansion have resulted in substantial increases in the number
its employees and the geographic area of its operations. The Company's ability
to support the growth of its operations will be substantially dependent upon
having in place highly trained internal and third-party resources to conduct
pre-sales activity, product implementation, training and other customer support
services. To accommodate this growth and the expected expansion of its staff,
the Company's officers and other key employees will be required to improve and
implement a variety of operational and financial systems and procedures, to
expand, train and manage its employee base and to engage and work effectively
with third-party implementation providers. There can be no assurance that the
Company will be able to manage its recent or any future expansion successfully.
Any inability to do so would likely have a material adverse effect on the
Company's business, results of operations 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, Canada, and Singapore. To support the growth of the Company's
international operations, the Company continues to incur significant costs to
build its service and support infrastructure ahead of anticipated revenues.
Operating costs in many countries, including some of those in which the Company
operates, are often higher than in the United States. As a result of this
expansion, the Company must continue to implement and improve its operational
and financial systems and procedures and to expand, train and manage both its
employee base and its relationships with third-party implementation providers.
These factors have placed, and are expected to continue to place, a significant
strain on the Company's management and operations. There can be no assurance
that the Company's international operations will continue to be successful or
that the Company will be able to manage effectively the increased level of
international operations. To the extent that the Company is unable to do so in a
timely manner or is unable to manage these activities effectively, the Company's
growth in international revenues, 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.
Furthermore, future increases in the value of the U.S. dollar could make
the Company's products less competitive in foreign markets. As the Company
increases its international operations, it may be materially adversely affected
by fluctuations in currency exchange rates, increases in duty rates, exchange or
price controls or other restrictions on foreign currencies. While the Company's
efforts to hedge foreign currency denominated intercompany balances are designed
to limit its exposure to fluctuations in foreign currency exchange rates, there
can be no assurance that its efforts will have such an effect. To the extent
that any exchange rate fluctuations would have had a positive impact on the
Company's financial performance, the effect of such hedging transactions could
be to eliminate or reduce the gains that would have otherwise accrued to the
Company. Furthermore, the Company is subject to foreign exchange rate
fluctuations as the financial results of foreign subsidiaries are translated
into U.S. dollars in consolidation.
Additional risks inherent in the Company's international business
activities include, among others, 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 and financial condition.
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Intense Competition
The front office solutions market, including the markets for customer
service, field service and logistics, help desk, quality assurance and sales and
marketing applications, is currently intensely competitive and subject to rapid
change. The Company believes that the principal competitive factors affecting
the markets for its products include quality, functionality, performance,
breadth of product line, integration of products, frequency of upgrades and
updates, manageability of products, customer support, company reputation and
price. 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, the Company expects additional competition from other
established 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. Among
software companies competing with the Company, principal competitors include
Siebel Systems, Inc. and The Vantive Corporation. Some of the Company's current
competitors, and many of the Company's potential competitors, have significantly
greater financial, technical, 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 may 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 these
competitors will rapidly acquire significant market share. Furthermore,
companies with greater technical, marketing and other resources than the Company
could compete directly with the Company either as a result of acquisition of a
competitor 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 or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, operating results and
financial condition.
The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as recommendations of its products during the evaluation stage of the
purchase process. Although the Company seeks to maintain close relationships
with these third-party implementation providers, many of these third parties
have similar, and often more established, relationships with the Company's
principal competitors. If the Company is unable to develop and maintain
effective, long-term relationships with these third parties, it would adversely
affect the Company's competitive position. Further, there can be no assurance
that these third parties, many of which have significantly greater financial,
marketing and technical resources than the Company, will not in the future
compete directly with the Company or otherwise discontinue their relationship
with or their support of the Company and its products.
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 and subject to significant delays over which the Company has
little or no control.
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
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complete and in some cases have disputed the consulting fees charged for
implementation. There can be no assurance that 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 resignations by the
Vice-President of Marketing and Vice-President of Customer Service and Support
in February 1998, and the Chief Financial Officer in August 1997. In March 1998,
the Company's President and Chief Executive Officer, Dave Stamm, assumed the
position of Chairman of the Board and a new President and Chief Executive
Officer was named, and in April 1998, a new Chief Financial Officer was named.
Furthermore, in July 1998, a new Senior Vice-President of Worldwide Professional
Services and a Vice-President of Worldwide Marketing were named. 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, financial and managerial personnel. 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, financial and managerial employees or that it can
attract, assimilate or retain other highly qualified technical, sales, financial
and managerial personnel in the future.
Product Concentration
To date, a significant portion of the Company's revenues have been
attributable to sales of ClearSupport, the Company's primary product.
ClearSupport has typically been the second 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 ClearSupport 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 markets for customer
service, field service and logistics, quality assurance, help desk, and sales
and marketing applications, is characterized by rapid technological change,
frequent new product introductions, evolving industry standards and rapid
changes in customer requirements. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. While the Company believes that it offers
one of the broadest product lines in the front office solutions market, this
market is continuing to evolve and customer requirements continue to change. 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
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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 affected.
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.
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.
Dependence on Proprietary Technology; Risks of Infringement
The Company's success is heavily dependent upon proprietary software
technology. 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. 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
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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 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.
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.
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.
"Year 2000" Issues
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. The Company is aware of the issues associated
with the programming code in existing computer systems as the year 2000
approaches and has formed a task force to address its Year 2000 readiness.
PROJECT
The Company's project is divided into four major sections -- Information
Technology (including both hardware systems and application software), Product
(including embedded software), Facilities (such as security system and building
equipment), and Suppliers. The general phases common to all sections are (1)
inventorying Year 2000 items; (2) assigning risks to identified items as fatal,
critical or marginal; (3) assessing the Year 2000 compliance of items; (4)
testing of items; and (5) repairing, renovating or replacing items that are
determined not to be Year 2000 compliant.
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At September 30, 1998, the Company has completed the first three phases of
the Information Technology section. A hardware and software inventory has been
conducted and relevant suppliers have been rated fatal, critical or marginal.
Based on the rating and other factors, a certification completion date has been
assigned to each item. Available vendors' statements of compliance have also
been reviewed. Internal testing plans have been developed for the Company's core
business systems. A separate test lab has been established and the Company
expects to complete the testing of its core business systems by March 31, 1999.
The Company expects to complete its test plans and testing of the Company's
ancillary systems by May 31, 1999. Since the systems and technologies used
internally have been developed in the late 1980's and 1990's, the Company does
not anticipate to have major Year 2000 issues in its Information Technology
section.
At September 30, 1998, the Company has completed all phases of the Product
section. The Company's products have been developed from inception with
consideration to the following Year 2000 issues:
(1) General Integrity -- no value for current date will cause
interruptions in desired operations.
(2) Data Integrity -- all manipulations of time-related data will
produce desired results for all valid date values within the application
domain.
(3) Implicit Century -- for any date element represented without
century, the correct century is unambiguous for all manipulations involving
that element.
(4) Leap year -- the products recognizes Year 2000 as a leap year.
The Company's current products meet all the requirements for General
Integrity, Data Integrity, Implicit Century and recognize Year 2000 as a leap
year. As an added measure of security, the Company is planning to seek
independent third-party certification of compliancy to its Clarify FrontOffice
98 suite. The Company also plans to apply its Year 2000 test plan and obtain
independent third-party compliance certification on its future products.
The Company has not specifically tested third-party licensed products that
are incorporated into its products, but the Company is seeking assurances from
its vendors that licensed software is Year 2000 compliant. Also, certain prior
versions of the Company's supported products require a patch provided by the
Company in order to be Year 2000 compliance.
The Company has completed the inventorying phase of the Facilities section
at September 30, 1998 and expects to complete the remaining phases by March 31,
1999. Also, at September 30, 1998, the Company has completed approximately 80%
of the inventorying, prioritizing and assessing phases and approximately 40% of
the testing and repairing, renovating and replacing phases of the Suppliers
section, respectively. The Company does not believe it is in high risk with
regards to these two sections and plans to complete all phases by March 31,
1999.
COST
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
The estimated cost of the Year 2000 project is approximately $400,000. The use
of internal resources or existing infrastructure is not accounted for in this
estimate. The total amount expended through September 30, 1998 was approximately
$20,000 to purchase lab testing equipment. The estimated future cost of
completing the Year 2000 project is estimated to be approximately $130,000 to
augment staff and to purchase additional testing equipment and approximately
$250,000 to obtain independent third-party compliance certification on the
company's current products. The Company has and plans to fund its Year 2000
project from its operating cash flows. The estimated cost of the Company's Year
2000 project does not represent a material fraction of the Company's planned
1999 budget for computer hardware and software. The Company does not anticipate
that any existing Information Technology projects will need to be deferred as of
part of its Year 2000 efforts.
RISK
Though the Company's Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problems, failure to
correct known or unknown material Year 2000 problems
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could result in delay or loss or revenue, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs, any
of which could materially adversely affect the Company's business, operating
results, or financial condition. The Company does not currently have any
information concerning the Year 2000 compliance status of its customers. As is
the case with other similarly situated software companies, if the Company's
current or future customers fail to achieve Year 2000 compliance or if they
divert technology expenditures to address Year 2000 compliance problems, the
Company's business, results of operations, or financial condition could be
materially adversely affected. In addition, some commentators have predicted
significant litigation regarding Year 2000 compliance issues. Due to the
unprecedented nature of such litigation, the Company is uncertain whether or to
what extent it may be affected by it.
CONTINGENCY PLAN
The Company has not yet fully developed a comprehensive contingency plan to
address situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations. The cost of developing and implementing
such a plan may itself be material. The Company is planning to develop
replacement and renovation plans as necessary as a result of its internal tests.
Issues Related to the European Monetary Conversion
The Company is aware of the issues associated with the forthcoming changes
in Europe aimed at forming a European economic and monetary union (the "EMU").
One of the changes resulting from this union will require EMU member states to
irrevocably fix their respective currencies to a new currency, the Euro, on
January 1, 1999. On that day, the Euro will become a functional legal currency
within these countries. During the next three years, business in the EMU member
states will be conducted in both the existing national currency, such as the
Franc or Deutsche Mark, and the Euro. As a result, companies operating in or
conducting business in EMU member states will need to ensure that their
financial and other software systems are capable of processing transactions and
properly handling these currencies, including the Euro.
The Company is still assessing the impact the EMU formation will have on
both its internal systems and the products it sells. The Company will take
appropriate corrective actions based on the results of such assessment. The
Company has not yet determined the cost related to addressing this issue and
there can be no assurance that this issue and its related costs will not have a
material adverse effect on 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.
PART II. OTHER INFORMATION.
ITEM 5. OTHER INFORMATION
Proposals of stockholders intended to be presented at the Company's 1999
annual meeting of stockholders must be received at the Company's principal
executive offices not later January 5, 1999 in order to be
20
<PAGE> 21
included in the Company's proxy statement and form of proxy relating to the 1999
annual meeting. Pursuant to new amendments to Rule 14a-4(c) of the Securities
Exchange Act of 1934, as amended, if a stockholder who intends to present a
proposal at the 1999 annual meeting of stockholders does not notify the Company
of such proposal on or prior to March 6, 1999, then management proxies would be
allowed to use their discretionary voting authority to vote on the proposal when
the proposal is raised at the annual meeting, even though there is no discussion
of the proposal in the 1999 proxy statement. The Company currently believes that
the 1999 annual meeting of stockholders will be held during the second week of
June 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
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(1) Certificate of Incorporation of the Registrant, as amended
to date
3.2 Amended and Restated Bylaws of the Company which is
incorporated by reference to the current report on form 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 Registrant 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
Second Amendment to Lease, dated 28-Feb-95
10.7(1) Master Equipment Lease Agreement by and between Costella
Kirsch/GATXPartnership No. 1 and the Registrant, dated
February 18, 1992
10.8(1) Master Equipment Lease Agreement by and between Venture
Leasing Assoc. and the Registrant, dated May 7, 1991
10.9(1) Master Equipment Lease Agreement by and between Phoenix
Leasing Incorporated and the Registrant, dated June 30, 1993
10.10(3) Offer Letter dated February 23,1998 between Anthony Zingale
and Clarify Inc.
10.11(3) Stock Option Agreement between Anthony Zingale and Clarify
Inc.
10.12 Lease by and between CarrAmerica Realty Corporation and
Clarify Inc. dated June 23, 1998.
10.13 Stock Option Agreement between Jan A. Praisner and Clarify
Inc.
10.14 Stock Option Agreement between Kirsten Berg-Painter and
Clarify Inc.
10.15 Stock Option Agreement between Jeanne Urich and Clarify Inc.
27.0 Financial Data Schedule for the nine months ended September
30, 1998 (included only in the copy of this report filed
electronically with the Commission)
</TABLE>
- ---------------
(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.
21
<PAGE> 22
(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.
(3) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K filed (File Number 000-26776) with the Securities and
Exchange Commission on March 31, 1998.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1998.
22
<PAGE> 23
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: November 10, 1998 CLARIFY INC.
(Registrant)
By: /s/ JAN A. PRAISNER
------------------------------------------
Jan A. Praisner
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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 (1) Certificate of Incorporation of the Registrant, as amended
to date
3.2 Amended and Restated Bylaws of the Company which is
incorporated by reference to the current report on form 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 Registrant 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
Second Amendment to Lease, dated 28-Feb-95
10.7 (1) Master Equipment Lease Agreement by and between Costella
Kirsch/GATXPartnership No. 1 and the Registrant, dated
February 18, 1992
10.8 (1) Master Equipment Lease Agreement by and between Venture
Leasing Assoc. and the Registrant, dated May 7, 1991
10.9 (1) Master Equipment Lease Agreement by and between Phoenix
Leasing Incorporated and the Registrant, dated June 30, 1993
10.10(3) Offer Letter dated February 23, 1998 between Anthony Zingale
and Clarify Inc.
10.11(3) Stock Option Agreement between Anthony Zingale and Clarify
Inc.
10.12 Lease by and between CarrAmerica Realty Corporation and
Clarify Inc. dated June 23, 1998. Inc.
10.13 Stock Option Agreement between Jan A. Praisner and Clarify
Inc.
10.14 Stock Option Agreement between Kirsten Berg-Painter and
Clarify Inc.
10.15 Stock Option Agreement between Jeanne Urich and Clarify Inc.
27.0 Financial Data Schedule for the nine months ended September
30, 1998 (included only in the copy of this report filed
electronically with the Commission)
</TABLE>
- ---------------
(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.
(3) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K filed (File Number 000-26776) with the Securities and
Exchange Commission on March 31, 1998.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1998.
<PAGE> 1
EXHIBIT 10.12
* * * * * * * * * * * * * * * * * * * *
Lease
VALLEY RESEARCH CENTRE
* * * * * * * * * * * * * * * * * * * *
Between
CLARIFY INC.
(Tenant)
and
CARRAMERICA REALTY CORPORATION
(Landlord)
<PAGE> 2
LEASE
THIS LEASE (the "Lease") is made as of June 23, 1998 (dated for
reference purposes only and referred to herein as the "Effective Date") between
CARRAMERICA REALTY CORPORATION, a Maryland corporation (the "Landlord") and the
Tenant as named in the Schedule below. The term "Project" means the four (4),
two-story buildings (the "Project Buildings") and other improvements commonly
known as the "Valley Research Centre" located on the land (the "Land") in San
Jose, California, as depicted on Exhibit A. Those Project Buildings in which the
Premises are located shall be sometimes collectively referred to herein as the
"Building", and the other Project Buildings shall be referred to herein as the
"Other Buildings"). The following schedule (the "Schedule") is an integral part
of this Lease. Terms defined in this Schedule shall have the same meaning
throughout the Lease.
SCHEDULE
1. TENANT: Clarify Inc., a Delaware corporation
2. PREMISES: Buildings A, B, C and D (the "Buildings"), located at 100, 102, 104
and 106 West Trimble Road, San Jose, California, respectively, as
more particularly described in Exhibit A attached hereto
3. RENTABLE SQUARE FOOTAGE OF THE PREMISES: Building A 64,512rsf
Building B 64,512rsf
Building C 64,512rsf
Building D 64,512rsf
Total 258,048rsf
4. TENANT'S PROPORTIONATE SHARE: 100% of each Building
5. LEASE DEPOSIT:
$338,688.00 = Prepaid Rent for Buildings B, C and D
$535,449.60 = Security Deposit for Buildings A, B, C and D
6. PERMITTED USE: Office, research, development, storage, disk duplication,
light assembly, and distribution of software products and
related lawful uses and a small publishing operation for
company newsletters and brochures related to Tenant's
business and products
7. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: Jim Abarta of Colliers Parrish
International, Inc.
8. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: None
9. TENANT IMPROVEMENT ALLOWANCE: See Section 3.C
10. COMMENCEMENT DATES: See Section 1A
1
<PAGE> 3
11. TERM: Buildings A, B and C 7 years
Building D 7 years and 9 months
12. GUARANTOR: None
13. PARKING STALLS: 868 total stalls in Project (includes six visitor and
2 motorcycle stalls adjacent to each Building)
14. INITIAL BASE RENT (SUBJECT TO INCREASES AS SET FORTH IN SECTION 2.A(1)(i)):
<TABLE>
<CAPTION>
Monthly Annual
Building Base Rent Base Rent
-------- ----------- -------------
<S> <C> <C>
A $112,896.00* $1,354,752.00*
B $112,896.00 $1,354,752.00
C $112,896.00 $1,354,752.00
D $112,896.00 $1,354,752.00
----- ----------- -------------
Total $451,584.00** $5,419,008.00**
</TABLE>
* If possession delivered after 12th month: $116,121.60 and $1,393,459.20,
respectively
** If possession delivered after 12th month: $454,809.60 and $5,457,715.20,
respectively
LIST OF EXHIBITS:
Exhibit A: Project Site Plan
Exhibit B: Form of Commencement Date Confirmation Memorandum
Exhibit C: Construction Schedule
Exhibit D: Tenant Improvement Agreement
Exhibit E: Tenant Improvement Guidelines
Exhibit F: Landlord's Signage Standards
Exhibit G: Rules and Regulations
Exhibit H: Mortgages Currently Affecting the Project
2
<PAGE> 4
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases the
Premises to Tenant, and Tenant leases the Premises from Landlord, including the
right to use the common areas (e.g. parking, sidewalk and other areas outside
the Project Buildings intended for use by tenants in the Project) for the Term
beginning on the Commencement Date and ending on the Termination Date unless
extended or sooner terminated pursuant to this Lease.
A. Commencement and Termination Dates.
(1) Buildings B and C Commencement Date. The Commencement Date
for Buildings B and C (the "Buildings B and C Commencement Date") shall be the
date which is the later of (i) the final delivery date for Buildings B and C
which is set forth in the approved "Construction Schedule" attached hereto as
Exhibit C, or (ii) the "Substantial Completion Date for Buildings B, C and D",
which shall be the date on which there is "Substantial Completion of the Tenant
Improvements" (as defined in Section 3B) for Buildings B, C and D. Promptly
following the Substantial Completion Date for Buildings B, C and D, Landlord and
Tenant shall execute a Commencement Date Confirmation in the form of Exhibit B,
attached hereto which shall set forth both the Commencement Date and Termination
Date for Buildings B and C. The Termination Date for Buildings B and C shall be
seven (7) years after the Buildings B and C Commencement Date.
(2) Building D Commencement Date. The Commencement Date for
Building D (the "Building D Commencement Date") shall be the date which is three
(3) months after the Buildings B and C Commencement Date. Promptly following the
Substantial Completion Date for Buildings B, C and D, Landlord and Tenant shall
execute a Commencement Date Confirmation in the form of Exhibit B, attached
hereto which shall set forth both the Commencement Date and Termination Date for
Building D. The Termination Date for Building D shall be seven (7) years and
nine (9) months after the Building D Commencement Date.
(3) Building A Commencement Date. The Commencement Date for
Building A (the "Building A Commencement Date") shall be the date which is the
earlier of (i) twelve (12) months after the Buildings B and C Commencement Date;
provided that such twelve (12) months shall be extended one day for each day of
delay caused by Landlord or "Force Majeure" (as defined in Section 22), or (ii)
the date on which Tenant first occupies Building A for the conduct of its
business. If Tenant desires to occupy Building A prior to the end of the twelve
(12) month period following the Buildings B and C Commencement Date, then Tenant
shall provide Landlord with sufficient advance written notice of Tenant's
intended occupancy date so that Landlord can timely finish the Substantial
Completion of the Tenant Improvements for Building A by the scheduled Building A
Commencement Date set forth in Tenant's notice without the necessity of paying
any overtime or other charges or fees which would not be necessitated but for
such desired early occupancy (unless Tenant agrees to pay for such additional
costs). Promptly following the Building A Commencement Date, Landlord and Tenant
shall execute a Commencement Date Confirmation in the form of Exhibit B,
attached hereto which shall set forth both the Commencement Date and Termination
Date for Building A. The Termination Date for Building A shall be seven (7)
years after the Building A Commencement Date.
3
<PAGE> 5
(4) Failure to Timely Deliver Buildings B, C and D. In the
event the Substantial Completion of the Tenant Improvements for Buildings B, C
and D is delayed by more than 180 days from the estimated date for the
Substantial Completion of the Tenant Improvements for such Buildings as set
forth in Landlord's Construction Schedule, attached hereto as Exhibit C, for
reasons other than "Tenant Delays" (as defined in Section 3.D) and Force
Majeure, then Tenant shall have the right to terminate this Lease by delivering
written notice to that effect to Landlord. Notwithstanding the foregoing, if
Landlord is able to cause the Substantial Completion of the Tenant Improvements
for Buildings B, C, and D to occur within the fifteen (15) day period following
Landlord's receipt of such termination notice, then Tenant's termination notice
shall be automatically withdrawn and this Lease shall remain in full force and
effect. Tenant agrees and acknowledges that upon Tenant's execution of this
Lease the then current Construction Schedule shall be attached hereto as Exhibit
C. In the event the Substantial Completion of the Tenant Improvements for
Buildings B, C and D is delayed by more than 180 days (as increased by any
additional days of delay caused by Tenant Delays) from the estimated date for
the Substantial Completion of the Tenant Improvements for such Buildings as set
forth in the Construction Schedule, and Tenant needs temporary space until such
time as the Buildings B, C and D are substantially completed, then Landlord
agrees that it shall work with Tenant to find other space in other projects
owned by Landlord in the area of the Project (if Landlord has any which is not
then occupied or the subject of pending negotiations), provided that Tenant
shall be responsible for paying rent (including its applicable share of taxes
and operating expenses) for such space to Landlord at the lesser of the rate
provided hereunder, or the then applicable market rate for such space if
provided by Landlord, and Tenant shall be solely responsible for all of its
moving costs, as well as the cost of any interior improvements which Tenant
desires in such temporary space.
B. Early Access/Occupancy Rights.
(1) Early Occupancy Right. Following the Substantial
Completion of the Tenant Improvements for any of Buildings B, C, D, and prior to
the Commencement Date for such Building (the "Early Occupancy Period"), Tenant
shall have the right to occupy and conduct its business within such Building(s),
subject to all of the terms, covenants and conditions of this Lease, except that
Tenant's obligation to pay "Base Rent", "Operating Cost Share Rent" or "Tax
Share Rent" (as such terms are defined in Sections 2.A(1), (2) and (3) below)
for such Building(s) shall be waived during the Early Occupancy Period.
(2) Early Access Right. During the three (3) week period prior
to the Substantial Completion of the Tenant Improvements of each of the
Buildings (the "Early Access Period"), Tenant shall be granted the limited right
to access each such Building for the sole purpose of installing
telecommunications cabling and equipment, telephones, fixtures, and other
furnishings therein, subject to the following terms and conditions: (i) any such
access shall be subject to those reasonable restrictions and limitations which
may be imposed by Landlord, its general contractor or any applicable union
officials, (ii) if Tenant's or its agents' exercise of its access rights
hereunder in any way causes a delay in Landlord's performance of the Tenant
Improvements work, and Tenant fails to cause the interfering act to cease within
twenty-four (24) hours after notice to Tenant then such delays shall be deemed
"Tenant Delays" for purposes of this Lease, (iii) Tenant shall not conduct
Tenant's business in the Buildings during the Early Access Period, (iv) Tenant's
access of the Premises during the Early Access Period shall be
4
<PAGE> 6
subject to all of the terms and conditions of this Lease, except that Tenant's
obligation to pay Base Rent, Operating Cost Share Rent or Tax Share Rent during
the Early Access Period shall be waived.
C. Termination of Existing Lease at 2125 O'Nel Drive. By executing
this Lease, Landlord and Tenant hereby agree to terminate Tenant's existing
lease (the "Existing Lease") with Landlord dated August 8, 1996 for that certain
space located at 2125 O'Nel Drive, San Jose, California (the "Existing
Premises") subject to the following terms and conditions: (i) the termination
date of the Existing Lease shall be the date which is thirty (30) days after the
Buildings B and C Commencement Date (the " Existing Lease Termination Date"),
(ii) on or before the Existing Lease Termination Date, Tenant shall surrender
the Existing Premises in the condition required under Section 15.2 of the
Existing Lease, except that Tenant shall not be required to remove any
alteration or improvement made to the Existing Premises; provided that the
condition of the Existing Premises is substantially the same as existed on the
date of Landlord's most recent walk-through, normal wear and tear excepted,
(iii) provided that Tenant has surrendered the Existing Premises in the
condition required under the Existing Lease (except as provided above), Landlord
shall return to Tenant any portion of the security deposit which is then held by
Landlord under the Existing Lease in the manner required thereunder and in no
event later than thirty (30) days following the Existing Lease Termination Date,
(iv) the obligations of each party accruing under the Existing Lease prior to
the Commencement Date shall survive the Existing Lease Termination Date, and (v)
immediately following the full execution of this Lease, Tenant shall cooperate
with Landlord in its marketing efforts to find a new tenant for the Existing
Premises (including, without limitation, (1) allowing Landlord to post marketing
signs on and in the vicinity of the Existing Premises, (2) answering prospective
tenants' questions about the project, (3) providing plans and other information
regarding the Existing Premises, and (4) allowing broker tours and granting
reasonable access for showing such space pursuant to advance notice and schedule
reasonably approved by Tenant). Landlord shall pay a lease termination fee to
Tenant in the amount of $700,000 (the "Termination Fee"). The Termination Fee
shall be paid to Tenant within the thirty (30) day period following the full
execution of this Lease, or if earlier, at the end of the calendar quarter in
which this Lease is fully executed; provided in no event shall Landlord be
obligated to pay the Termination Fee prior to the full execution of this Lease.
D. Change of Street Address for Buildings C and D. During any period
in which Tenant leases both Buildings C and D, Landlord agrees that Tenant shall
have the right to seek a street address change for Buildings C and D from "West
Trimble Road" to "Orchard Parkway" provided that Tenant shall be solely
responsible for making all applications and presentations to the applicable
governmental authorities and paying all fees and other costs associated with
obtaining the necessary permits and approvals for such an address change.
Landlord agrees to support and assist Tenant in such efforts provided that
Landlord shall have no obligation to incur any expenses in doing so.
2. RENT.
A. Types of Rent. Commencing on the applicable Commencement
Date, Tenant shall pay the following Rent in the form of a check (or via wire
transfer) to Landlord pursuant to instructions to be given by Landlord to Tenant
prior to the Commencement Date.
5
<PAGE> 7
(1) Base Rent in monthly installments in advance, the
first monthly installment payable on or prior to the applicable Commencement
Date, as defined below (less the Prepaid Rent which will be applied against the
first month's Base Rent), and thereafter on or before the first day of each
month of the Term in the amount set forth on the Schedule.
(i) Adjustments to Base Rent. At the end of each
twelve (12) month period following the Buildings B and C Commencement Date for
the entire Term of the Lease including any extension thereof (hereinafter, the
"Rent Adjustment Date"), the Base Rent for each Building (whether or not the
Commencement Date for such Building has occurred) shall be increased by the
lesser of: (i) four (4) times the cumulative percentage increase in the CPI
measured from the "Initial CPI Publication Date" to the "New CPI Publication
Date" (as such terms are defined below), or (ii) a cumulative annual fixed
increase in the amount of $0.05 per rentable square foot per month, in each case
less any rent increases previously made pursuant to this Section. In other
words, if the Base Rent only increased by $.03 per square foot on the first Rent
Adjustment Date, then on the next Rent Adjustment Date the Base Rent would be
increased by the lesser of (a) $.07 per rentable square foot per month (i.e.,
the cumulative annual fixed increase of $.10 less the increase of $.03 which
occurred on the first Rent Adjustment Date), or (b) four (4) times the
cumulative percentage increase in the CPI from the Initial CPI Publication Date
to the New CPI Publication Date. This formula is further illustrated in the
example below.
(ii) Definitions.
(a) The term "CPI" shall mean the
Consumers Price Index, All Items, 1982-1984 = 100, All Urban Consumers, for San
Francisco - Oakland - San Jose, California, as published by the United States
Department of Labor, Bureau of Labor Statistics, or its successor index, or if
there is none, a comparable index to be reasonably selected by Landlord.
(b) The term "New CPI Publication Date"
shall mean the last month for which the CPI is published immediately before the
applicable Base Rent Adjustment Date.
(c) The term "Initial CPI Publication
Date" shall mean the last month for which the CPI was published immediately
before the Effective Date hereof.
(iii) Example. For example, assuming possession of
Building A was delivered prior to the first Rent Adjustment Date, and on the
first Rent Adjustment Date the percentage increase in CPI from the Initial CPI
Publication Date to the New CPI Publication Date is 2.2%, then the monthly Base
Rent for all of the Buildings would be increased by the lesser of (i) $39,739.39
(i.e., 4 times 2.2% times $451,584.00), or (ii) $12,902.40 (i.e., $.05 per
square foot per month times 258,048rsf). Assuming on the next Rent Adjustment
Date the percentage increase in the CPI from the Initial CPI Publication Date to
the New CPI Publication Date is only 0.5%, then the monthly Base Rent would be
increased by the lesser of: (a) $9,289.73 (i.e., 4 times 0.5% times
$464,486.40), or (b) $12,902.40 (i.e., the cumulative fixed increase of
$25,804.80 (which is the annual fixed increase of $12,902.40 times 2 years) less
the increase of
6
<PAGE> 8
$12,902.40 which was previously made on the first Rent Adjustment Date). Lastly,
assuming on the third Rent Adjustment Date the percentage change in CPI from the
Initial CPI Publication Date to the new CPI Publication Date is 1.1%, then the
monthly Base Rent would be increased by the lesser of: (x) $20,846.15 (i.e., 4
times 1.1% times $473,776.13), or (y) $16,450.56 (i.e., the cumulative fixed
increase of $38,707.20 (the annual fixed increase of $12,902.40 times 3 years)
less $22,192.13 which is the total increase in monthly Base Rent previously made
on the first (i.e., $12,902.40 and second (i.e., $9,289.73) Rent Adjustment
Dates pursuant to this Section).
(2) Operating Cost Share Rent in an amount equal to the
Tenant's Proportionate Share of the Operating Costs for the applicable fiscal
year of the Lease, paid monthly in advance in an estimated amount. Definitions
of Operating Costs and Tenant's Proportionate Share, and the method for billing
and payment of Operating Cost Share Rent are set forth in Sections 2B, 2C and
2D.
(3) Tax Share Rent in an amount equal to the Tenant's
Proportionate Share of the Taxes for the applicable fiscal year of this Lease,
paid semi-annually as set forth in Section 2.B(1) below. A definition of Taxes
and the method for billing and payment of Tax Share Rent are set forth in
Sections 2B, 2C and 2D.
(4) Additional Rent in the amount of all costs,
expenses, liabilities, and amounts which Tenant is required to pay under this
Lease, excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent,
Operating Cost Share Rent, Tax Share Rent and Additional Rent. Tenant's
agreement to pay Rent is an independent covenant, with no right of setoff,
deduction or counterclaim of any kind.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
(1) Payment of Estimated Operating Cost Share Rent and
Tax Share Rent. Landlord shall estimate the Operating Costs and Taxes of the
Project by April 1 of each fiscal year, or as soon as reasonably possible
thereafter. Landlord may revise these estimates whenever it obtains more
accurate information, such as the final real estate tax assessment or tax rate
for the Project. Within twenty (20) days after receiving the original or revised
estimate from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of
Tenant's Proportionate Share of this estimate, multiplied by the number of
months that have elapsed in the applicable fiscal year to the date of such
payment including the current month, minus payments previously made by Tenant
for the months elapsed. On the first day of each month thereafter, Tenant shall
pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this
estimate, until a new estimate becomes applicable.
(2) Correction of Operating Cost Share Rent. Landlord
shall deliver to Tenant a report for the previous fiscal year (the "Operating
Cost Report") by May 15th of each year, or as soon as reasonably possible
thereafter, setting forth (a) the actual Operating Costs incurred (including a
detailed list of each Operating Cost item by category), (b) the amount of
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Operating Cost Share Rent due from Tenant, and (c) the amount of Operating Cost
Share Rent paid by Tenant. Within twenty (20) days after such delivery, Tenant
shall pay to Landlord the amount due minus the amount paid. If the amount paid
exceeds the amount due, Landlord shall apply the excess to Tenant's payments of
Operating Cost Share Rent (or at Tenant's election other items of Rent) next
coming due.
(3) Correction of Tax Share Rent. Landlord shall
deliver to Tenant a report for the previous fiscal year (the "Tax Report") by
May 15th of each year, or as soon as reasonably possible thereafter, setting
forth (a) the actual Taxes, (b) the amount of Tax Share Rent due from Tenant,
and (c) the amount of Tax Share Rent paid by Tenant. Within twenty (20) days
after such delivery, Tenant shall pay to Landlord the amount due from Tenant
minus the amount paid by Tenant. If the amount paid exceeds the amount due,
Landlord shall apply the excess to Tenant's payments of Tax Share Rent next
coming due.
(4) Corrections During Last Year. In the event of an
adjustment to Operating Costs Share Rent and/or Tax Share Rent for the last year
(or portion thereof) of the Term, Landlord shall pay to Tenant, within thirty
(30) days of the delivery of the Operating Cost Report and Tax Report for such
year (or portion thereof), any overpayment made by Tenant and Tenant shall pay
to Landlord, within thirty (30) days after delivery of such reports, any
underpayment by Tenant. The foregoing obligations shall survive the expiration
or other termination of the Lease.
C. Definitions.
(1) Included Operating Costs. "Operating Costs" means
any expenses, costs and disbursements of any kind other than Taxes, paid or
incurred by Landlord which relate to the period following each applicable
Commencement Date in connection with the management, maintenance, operation,
insurance, repair and other related activities in connection with any part of
the Project and of the personal property, fixtures, machinery, equipment,
systems and apparatus used in connection therewith, including the cost of
providing those services required to be furnished by Landlord under this Lease
and a reasonable management fee. Operating Costs shall also include the costs of
any capital improvements which are intended to reduce Operating Costs or improve
safety, and those made to keep the Project in compliance with governmental
requirements applicable from time to time or to replace existing capital
improvements, facilities and equipment within the Buildings or the common areas
of the Project, such as the roof membrane and resurfacing of the parking areas
(collectively, "Included Capital Items"); provided, that the costs of any
Included Capital Item shall be amortized by Landlord, together with an amount
equal to interest at ten percent (10%) per annum, over the estimated useful life
of such item and such amortized costs are only included in Operating Costs for
that portion of the useful life of the Included Capital Item which falls within
the Term, unless the cost of the Included Capital Item is less than Ten Thousand
Dollars ($10,000) in which case it shall be expensed in the year in which it was
incurred. If the Project contains more than one building, then Operating Costs
shall include (i) all Operating Costs fairly allocable to the Building,
including all Operating Costs paid with respect to the maintenance, repair,
replacement and use of the Building, and (ii) a proportionate share (based on
the gross rentable area of the Building as a percentage of the gross leasable
area of all of the Buildings in the Project) of all Operating Costs which relate
to the
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Project in general and are not fairly allocable to any one building in the
Project. All leases for other buildings in the Project, if any, shall provide
for allocating of Operating Costs in substantially the same manner as set forth
herein.
If the Project is not fully occupied during any portion of any
fiscal year, Landlord may adjust (an "Equitable Adjustment") Operating Costs to
equal what would have been incurred by Landlord had the Project been fully
occupied. This Equitable Adjustment shall apply only to Operating Costs which
are incurred by Landlord and which are variable and therefore increase as
occupancy of the Project increases. Landlord may incorporate the Equitable
Adjustment in its estimates of Operating Costs.
If Landlord does not furnish any particular service whose cost
would have constituted an Operating Cost to a tenant other than Tenant who has
undertaken to perform such service itself, Operating Costs shall be increased by
the amount which Landlord would have incurred if it had furnished the service to
such tenant.
(2) Excluded Operating Costs. Operating Costs shall not
include:
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than
Included Capital Items;
(c) interest and principal payments, points,
penalties and fees on mortgages or any other
debt costs, or rental and other payments on
any ground lease of the Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and
advertising expenses incurred with regard to
leasing the Building or portions thereof;
(f) any cost or expenditure for which Landlord
is reimbursed, by insurance proceeds or
otherwise, except by Operating Cost Share
Rent, provided that Landlord shall exercise
commercially reasonable efforts to collect
the same (which shall not include the
initiation of legal action);
(g) the cost of any service furnished to any
tenant of the Project which Landlord does
not make available to Tenant;
(h) depreciation and amortization (except on any
Included Capital Items in the manner
described above);
(i) franchise or income taxes imposed upon
Landlord, except to
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the extent imposed in lieu of all or any
part of Taxes;
(j) costs of initial construction and to correct
defects in construction of the Premises,
Buildings and Project (as opposed to the
cost of normal repair, maintenance and
replacement expected with the construction
materials and equipment installed in the
Premises, Buildings or Project in light of
their specifications, provided the foregoing
shall not affect Tenant's obligations
pursuant to Sections 3C(2) and (3));
(k) legal and auditing fees which are for the
benefit of Landlord such as collecting
delinquent rents, preparing tax returns and
other financial statements, and audits other
than those incurred in connection with the
preparation of reports required pursuant to
Section 2B above;
(l) the wages of any employee for services not
related directly to the management,
maintenance, operation and repair of the
Building; and
(m) fines, penalties and interest;
(n) any property management fee in excess of one
percent (1.0%) of the aggregate monthly Base
Rent which is then being paid by Tenant;
(o) costs incurred for capital improvements
intended to reduce Operation Costs, to the
extent in excess of the projected cost
savings realized;
(p) costs incurred due to the gross negligence
or willful misconduct of Landlord or
Landlord's employees and agents;
(q) expenses, damages and penalties (including,
without limitation, attorneys fees) incurred
due to Landlord's violation of any lease,
deed of trust, mortgage, other security
instrument, ground lease, Governmental
Regulation or private restrictions affecting
the Premises, Buildings or Project, unless
such costs were incurred in whole or in part
due to Tenant's activities at the Project,
or its failure to timely perform its
obligations hereunder;
(r) advertising, marketing, media and
promotional expenditures regarding the
Premises, Buildings or Project, and costs of
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signs in or on the Premises, Buildings or
Project identifying the lender or any
contractor, except that the costs incurred
to maintain any project signs which identify
Landlord shall be Included Operating Costs;
(s) costs incurred in connection with the
presence, investigation, monitoring,
release, removal or remediation of any
Hazardous Materials on, under, in or about
the Premises, Building or Project, which was
not caused or contributed to by tenant,
provided that costs incurred to respond to a
governmental or quasi-governmental order or
mandate shall be an Included Operating Cost
if the Project is not identified as a source
of such contamination (e.g., all property
owners are required to conduct routine
groundwater monitoring on their property
regardless of whether their property was or
is a source of any contamination);
(t) any cost items that are not subject to
apportionment among all tenants or the
Project in proportion to the ratio of the
total floor area of the premises leased by
such tenants (with Landlord being considered
the tenant of any unleased premises) to the
total floor area of the Project; and
(u) Operating Costs shall be subject to the
following limitations:
(a) Compensation for Landlord's
management and maintenance personnel
shall exclude: professional, civic
or recreational memberships; costs
of seminars, conventions,
educational programs and the like;
and charitable contributions.
(b) The aggregate sum of all Operating
Costs items allocated to tenants of
the Project for any year upon which
an allocation is made shall not
exceed the aggregate sum of such
cost items which are actually
incurred by Landlord for the year in
question. No cost item shall be
included more than once or allocated
under more than one expense
category.
(3) Taxes. "Taxes" means any and all taxes, assessments
and charges of any kind, general or special,
ordinary or extraordinary, levied against the
Project, which Landlord shall pay or become
obligated to pay in connection with the ownership,
leasing, renting, management, use, occupancy,
control or operation of the Project or of the
personal property, fixtures, machinery, equipment,
systems and apparatus used in connection therewith.
Taxes shall include real estate taxes, personal
property taxes, sewer rents, water rents, special
or general assessments, transit taxes, ad valorem
taxes, and any tax levied on the rents hereunder or
the
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interest of Landlord under this Lease (the "Rent Tax"). Taxes shall also include
all fees and other costs and expenses paid by Landlord in reviewing any tax and
in seeking a refund or reduction of any Taxes, whether or not the Landlord is
ultimately successful. Taxes shall also include any assessments or fees paid to
any business park owners association, or similar entity, which are imposed
against the Project pursuant to any Covenants, Conditions and Restrictions
("CC&R's") recorded against the Land and any 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 imposed in connection with any change in ownership or new
construction.
For any year, the amount to be included in Taxes (a) from
taxes or assessments payable in installments, shall be the amount of the
installments (with any interest) due and payable during such year, and (b) from
all other Taxes, shall at Landlord's election be the amount accrued, assessed,
or otherwise imposed for such year or the amount due and payable in such year.
Any refund or other adjustment to any Taxes by the taxing authority shall apply
during the year in which the adjustment is made. Taxes shall not include any net
income (except Rent Tax), capital, stock, succession, transfer, franchise, gift,
estate or inheritance tax, except to the extent that such tax shall be imposed
in lieu of any portion of Taxes. Notwithstanding anything to the contrary in the
Lease, "Taxes" shall not include, and Tenant shall have no liability for, the
following charges:
(a) Interest or penalties imposed as a result of
Landlord's failure to pay Taxes when due
unless Tenant fails to timely pay amounts
due Landlord hereunder;
(b) Fees, taxes or assessments imposed on
Landlord for the privilege or right to
conduct its business in general (including,
for example, fees paid for Landlord's
business license) rather than for a permit
or license to operate the Project or any
equipment or facility therein in particular.
(c) Special assessments, exactions, fees, the
value of any Land or improvements required
to be dedicated or provided by Landlord as a
condition to obtaining any governmental
approvals for the construction of all or any
portion of the Project. 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. Any
reduction or refund or Taxes paid by Tenant
during the Term shall be refunded to Tenant
within Thirty (30) days after receipt by
Landlord. The foregoing obligation shall
survive the expiration or termination of the
Lease.
(4) Lease Year. "Lease Year" means each consecutive
twelve-month
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period beginning with the Commencement Date, except that if the Commencement
Date is not the first day of a calendar month, then the first Lease Year shall
be the period from the Commencement Date through the final day of the twelve
months after the first day of the following month, and each subsequent Lease
Year shall be the twelve months following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year,
except that the first fiscal year and the last fiscal year of the Term may be a
partial calendar year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than
the first day of a month, the Base Rent, Operating Cost Share Rent and Tax Share
Rent shall be prorated for such partial month based on the actual number of days
in such month. If this Lease begins on a day other than the first day, or ends
on a day other than the last day, of the fiscal year, Operating Cost Share Rent
and Tax Share Rent shall be prorated for the applicable fiscal year.
(2) Default Interest. Any sum due from Tenant to
Landlord not paid when due shall bear interest from the date due until paid at
the lesser of eighteen percent (18%) per annum or the maximum rate permitted by
law.
(3) Rent Adjustments. The square footage of the Premises
and the Buildings set forth in the Schedule are conclusively deemed to be the
actual square footage thereof, without regard to any subsequent remeasurement of
the Premises or the Building. If any Operating Cost paid in one fiscal year
relates to more than one fiscal year, Landlord shall proportionately allocate
such Operating Cost among the related fiscal years.
(4) Books and Records. Landlord shall maintain books and
records reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant and its certified public accountant
shall have the right to inspect Landlord's records at Landlord's office upon at
least seventy-two (72) hours' prior notice during normal business hours during
the ninety (90) days following the respective delivery of the Operating Cost
Report or the Tax Report. The results of any such inspection shall be kept
strictly confidential by Tenant and its agents, and Tenant and its certified
public accountant must agree, in their contract for such services, to such
confidentiality restrictions and shall specifically agree that the results shall
not be made available to any other tenant of the Project. Unless Tenant sends to
Landlord any written exception to either such report within said ninety (90) day
period, such report shall be deemed final and accepted by Tenant. Tenant shall
pay the amount shown on both reports in the manner prescribed in this Lease,
whether or not Tenant takes any such written exception, without any prejudice to
such exception. If Tenant makes a timely exception, Landlord shall cause its
independent certified public accountant or shall select and cause another firm
with at least five (5) years of experience in auditing the books and records of
commercial office projects to issue a final and conclusive resolution of
Tenant's exception. Tenant shall pay the cost of such certification unless
Landlord's original determination of annual Operating Costs or Taxes in the
aggregate overstated the amounts thereof by more than five percent (5%).
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(5) Miscellaneous. So long as Tenant is in default after
the expiration of applicable notice and cure periods of any obligation under
this Lease, Tenant shall not be entitled to any refund of any amount from
Landlord. If this Lease is terminated for any reason prior to the annual
determination of Operating Cost Share Rent or Tax Share Rent, either party shall
pay the full amount due to the other within fifteen (15) days after Landlord's
notice to Tenant of the amount when it is determined. Landlord may commingle any
payments made with respect to Operating Cost Share Rent or Tax Share Rent,
without payment of interest.
3. CONSTRUCTION OF BUILDING SHELL, TENANT IMPROVEMENTS AND
POSSESSION.
A. Construction of Building Shell. Landlord has engaged
Rudolph & Sletten ("Contractor") to construct the Building Shell for each of the
Buildings in accordance with the Construction Schedule attached as Exhibit C and
the final drawings, plans and specifications (the "Final Plans") prepared by TSH
Architecture ("Architect") and approved by Tenant prior to the execution of this
Lease. If Landlord wishes to make any material deviations in the Final Plans (or
any material changes to previously approved Final Plans), it shall deliver
written notice of such material deviations or changes to Tenant and Tenant shall
respond in writing within five (5) days of Landlord's notice and Tenant's
failure to do so shall be deemed Tenant's approval of such changes in the Final
Plans. Landlord shall not use any portion of the "Tenant Improvement Allowances"
(as defined below) to construct the Building Shells. The "Building Shell" shall
mean the Building structure, exterior walls, full glass line, floor slab, and
roof (which shall be designed and constructed to support a mechanical system
reasonably sufficient for standard office use), and shall include the parking
lot, parking lot lighting, landscaping, underground conduit between the
Buildings, and the base for the street monument signs for each of the Buildings
(but not the installation of Tenant's name and/or logo on such sign which shall
be installed at Tenant's cost). The "Building Shell" would also include bringing
phone, electrical, gas and plumbing service to each Building (i.e., stubbed but
not distributed) and for installing the main fire sprinkler trunks (i.e.,
installed but not distributed or "dropped"). The Building Shell does not include
any elevators, stairs, HVAC, roof screens, utility meters or thermal insulation.
In the event of any conflict between the Preliminary Plans and/or Final Plans
and the definition of "Building Shell" contained herein, the parties agree that
the definitions contained in this Lease shall control. Any improvements made by
Landlord which do not constitute part of the "Building Shell" shall be deemed to
be part of the "Tenant Improvements".
B. Construction of Tenant Improvements. Landlord shall cause
the Tenant Improvements to be constructed within each Building in accordance
with the "Tenant Improvements Agreement" attached hereto as Exhibit D. The
"Substantial Completion of the Tenant Improvements" for a particular Building
shall mean the date when the Tenant Improvements Architect (as defined in the
Tenant Improvements Agreement) shall have executed a certificate or statement
representing that the Tenant Improvements for that Building have been
substantially completed in accordance with the approved Tenant Improvement Plans
(as defined in the Tenant Improvements Agreement) for that Building and all
requisite governmental approvals have been obtained to permit immediate
occupancy by Tenant, provided Tenant agrees and acknowledges that the final
paper work for such approvals need not be obtained (e.g., a sign off of the
applicable building permit at the final inspection or issuance of a temporary
certificate of occupancy shall be sufficient notwithstanding the fact that a
formal certificate of occupancy will
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not be issued until later). Tenant agrees and acknowledges that the Substantial
Completion of the Tenant Improvements for a Building may occur notwithstanding
the fact that certain tasks to be performed by Landlord have yet to be completed
(e.g., "punch list items" (as defined in Section 3E below), parking lot,
landscape installation, monument sign installation, street improvements, etc.),
so long as such unfinished tasks do not interfere with Tenant's ability to
reasonably access such Building off Orchard Parkway, park and commence
conducting its business therein.
C. Tenant Improvement Allowances. Landlord shall provide the
following "Tenant Improvement Allowances" in connection with the construction of
the Tenant Improvements. All of the Tenant Improvement Allowances must be used
(if at all) prior to the expiration of the sixth (6th) month period immediately
following the Building A Commencement Date and Landlord shall have no obligation
to make the following Tenant Improvement Allowances available to Tenant after
the expiration of this period. The Tenant Improvement Allowance shall be applied
against the costs and expenses incurred in connection with the performance of
the Tenant Improvement work, including without limitation, the design,
permitting, construction and installation of the Tenant Improvements. Tenant
shall have the right to allocate the Tenant Improvement Allowance among the
Buildings in any manner which is reasonably approved by Landlord, provided that
at least $25.00 per rentable square foot of actual construction and materials
costs (excluding soft costs, such as the Architect's costs and fees) be incurred
in each of three or more of the Buildings and at least $20.00 per rentable
square foot of actual construction and material costs (excluding soft costs,
such as the fees and costs of any architects engaged pursuant to the Tenant
Improvements Agreement) be incurred in the other Building, and at a minimum the
"Building core" shall be built out for each of the Buildings.
(1) First Level Tenant Improvement Allowance. Included
in the Base Rent payable hereunder, Landlord shall provide up to $5,160,960.00
(i.e., $20.00 per square foot of each of the Buildings) (the "First Level Tenant
Improvement Allowance"). Up to $516,096.00 (i.e. $2.00 per square foot of the
Buildings) of the First Level Tenant Improvement Allowance may be used by Tenant
for costs associated with moving into the Premises, installation of a security
system, window coverings, telecommunications cabling, and related fees paid to
consultants.
(2) Second Level Tenant Improvement Allowance. A second
level Tenant Improvement Allowance ("Second Level Tenant Improvement Allowance")
of up to $3,870,720.00 (i.e., $15.00 per square foot of each of Buildings) shall
be made available; provided that for each $1,000 of the Second Level Tenant
Improvement Allowance which is used by Landlord for the construction of the
Tenant Improvements, the monthly Base Rent payable hereunder shall be increased
by $14.650 (i.e., amortized over 8 years at 9%). In the event any portion of the
Second Level Tenant Improvement Allowance is used, Landlord and Tenant agree to
execute an amendment to this Lease to increase the amount of Base Rent payable
hereunder in the manner described above and at such time Tenant shall be
required to pay to Landlord in a single cash lump sum all Base Rent increases
for those months from the Commencement Date for the Buildings for which such
Second Level Tenant Improvement Allowance was applied to the date of the
amendment.
(3) Third Level Tenant Improvement Allowance. A third
level Tenant
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Improvement Allowance ("Third Level Tenant Improvement Allowance") of up to
$1,290,240.00 (i.e., $5.00 per square foot of each of the Buildings) shall be
made available; provided that for each $1,000 of the Third Level Tenant
Improvement Allowance which is used by Landlord for the construction of the
Tenant Improvement, the monthly Base Rent payable hereunder shall be increased
by $15.174 (i.e., amortized over 8 years at 10%). In the event any portion of
the Third Level Tenant Improvement Allowance is used, Landlord and Tenant agree
to execute an amendment to this lease to increase the amount of Base Rent
payable hereunder in the manner described above and at such time Tenant shall be
required to pay to Landlord in a single cash lump sum all Base Rent increases
for those months from the Commencement Date for the Buildings for which such
Third Level Tenant Improvement Allowance was applied to the date of the
amendment.
D. Landlord's Representations. Landlord represents that:
(i) As of the applicable Commencement Date for
each of the Buildings and for the twelve month period immediately following the
Commencement Date, the building systems for such Building (e.g., mechanical,
HVAC, electrical, plumbing and roof) shall be in good-working condition and
repair, except for any damage caused by (or repairs which may be required as a
result of) the activities of Tenant, or its agents, employees, contractors or
invitees.
(ii) Tenant shall have the benefit of any
warranties which Landlord receives from its contractors and suppliers on
equipment, or Tenant Improvement work and will cooperate with Tenant in making
any claims or such warranties.
(iii) The Project shall be designed and
constructed in accordance with applicable Building codes and laws, including the
Americans With Disabilities Act ("ADA") which are in existence as of the date on
which the Building Permit is pulled, as interpreted by the applicable
governmental authority which issues the building permit, provided that any
future compliance costs shall be solely Tenant's responsibility.
E. Tenant's Possession/Condition of Premises and Project.
Tenant's taking possession of any portion of each Building (including during the
Early Occupancy Period) shall be conclusive evidence that such Building was in
good order, repair and condition, subject only to those "punch list items" noted
by Tenant in writing to Landlord within the thirty (30) day period immediately
following the date on which Tenant takes possession of such Building, and to
latent construction defects. Tenant's taking possession of the last Building
(including during the Early Occupancy Period) shall be conclusive evidence that
such Building and the Project were in good order, repair and condition, subject
only to those punch list items noted by Tenant in writing to Landlord within the
thirty (30) day period immediately following the date on which Tenant takes
possession of such Building, and to latent construction defects. Following
Landlord's receipt of the punch list, Landlord shall promptly and diligently
complete or repair such punch list items in accordance with the applicable
approved Final Plans or the approved Tenant Improvements Plans (as defined in
Exhibit D).
4. SERVICES AND UTILITIES. As of the Commencement Date (and, if
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applicable, during the Early Occupancy Period), 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 and services furnished
directly to or used by Tenant on or about the Premises during the Term,
including without limitation, (i) meter, use and/or connection fees, hook-up
fees, or standby fees (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
interrupted service. Notwithstanding the foregoing, Tenant shall not be
responsible for the cost associated with bringing the utility lines from the
street to each of the Buildings, such costs shall be part of the Building Shell
costs. 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
reasonably 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, at Tenant's expense, a separate meter to measure the utility
service supplied to the Premises. Any interruption or cessation of utilities
resulting from any causes, including any entry for repairs pursuant to this
Lease, and any renovation, redecoration or rehabilitation of any area of the
Project shall not render Landlord liable for damages to either person or
property or for interruption or loss to Tenant's business, nor be construed as
an eviction of Tenant, nor work an abatement of any portion of Rent, nor relieve
Tenant from fulfillment of any covenant or agreement hereof; provided, however,
in the event that an interruption of the Project services causes the Premises to
be untenantable for a period of at least ten (10) consecutive business days,
monthly Rent shall be abated proportionately.
5. ALTERATIONS.
A. LANDLORD'S CONSENT AND CONDITIONS. Tenant shall not make
any improvements or alterations to the Premises (excluding Tenant Improvements
constructed pursuant to Exhibit D) (the "Work") costing in excess of $25,000.00
per Work project without in each instance submitting plans and specifications
for the Work to Landlord and obtaining Landlord's prior written consent which
shall not be withheld unreasonably. Tenant shall pay Landlord's standard charge
(or, if Landlord does not have a standard charge, then Landlord's actual costs
incurred not to exceed $1,000.00 unless the proposed work requires Landlord to
engage technical consultants in which case Tenant shall pay the actual costs of
such consultants) for review of all of the plans and all other items submitted
by Tenant. Landlord will be deemed to be acting reasonably in withholding its
consent for any Work which (a) impacts the base structural components or systems
of the Building, (b) during any period in which Tenant does not lease all of the
Buildings, impacts any other tenant's premises, or (c) adversely affects the
external appearance of the Premises.
Tenant shall pay for the cost of all Work, including the cost of
any and all approvals, permits, fees and other charges which may be required as
a condition of performing such Work. Upon completion all Work shall become the
property of Landlord, except for Tenant's trade fixtures and for items which
Landlord requires or permits Tenant to remove at Tenant's cost at the
termination of the Lease pursuant to Section 5E.
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The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to
Landlord building permits, certificates of insurance satisfactory to Landlord,
and, at Landlord's request for any work costing in excess of $100,000.00,
security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain
peace and harmony among other contractors serving the Project and shall minimize
interference with other work to be performed or services to be rendered in the
Project.
(3) The Work shall be performed in a good and
workmanlike manner, meeting the standard for construction and quality of
materials in the Building, and shall comply with all insurance requirements and
all applicable governmental laws, ordinances and regulations ("Governmental
Requirements").
(4) Tenant shall perform all Work so as to minimize or
prevent disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
(5) Tenant shall perform all Work in compliance with any
"Policies, Rules and Procedures for Construction Projects" which may be in
effect at the time the Work is performed. In the event of any conflict between
the Policies, Rules and Procedures for Construction Projects and this Lease, the
terms of this Lease shall control.
(6) Tenant shall permit Landlord to supervise and
observe all Work.
(7) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of liens, as-built
plans and specifications and all other close-out documentation related to the
Work, including any other information required under any "Policies, Rules and
Procedures for Construction Projects" which may be in effect at such time.
B. Damage to Systems. If any part of the mechanical,
electrical or other systems in the Premises (e.g., HVAC, life safety or
automatic fire extinguisher/sprinkler system) shall be damaged during the
performance of the Work, Tenant shall promptly notify Landlord, and Tenant (or,
at Landlord's election Landlord) shall repair such damage at Tenant's expense.
Landlord may also at any reasonable time make any repairs or alterations which
Landlord deems necessary for the safety or protection of the Project, or which
Landlord is required to make by any court or pursuant to any Governmental
Requirement. The cost of any repairs made by Landlord on account of Tenant's
default, or on account of the mis-use or neglect by Tenant or its invitees,
contractors or agents anywhere in the Project, shall become Additional Rent
payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any
lien or encumbrance of any kind to affect Landlord's interest in the Project;
any such lien or encumbrance
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shall attach to Tenant's interest only. If any mechanic's lien shall be filed
for work or materials furnished to Tenant, then Tenant shall at its expense
within ten (10) days after notice of such lien is received by Tenant either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses
incurred by Landlord, shall become Additional Rent payable by Tenant on demand.
D. Ownership of Improvements. All Work as defined in this
Section 5, partitions, hardware, equipment, machinery and all other improvements
and all fixtures except trade fixtures, constructed in the Premises by either
Landlord or Tenant, (i) shall become Landlord's property upon installation
without compensation to Tenant, unless Landlord consents otherwise in writing,
and (ii) shall at Landlord's option either (a) be surrendered to Landlord with
the Premises at the termination of the Lease or of Tenant's right to possession,
or (b) be removed in accordance with Subsection 5E below (unless Landlord at the
time it gives its consent to the performance of such construction expressly
waives in writing the right to require such removal. Landlord shall provide such
advice at Tenant's request).
E. Removal Upon Termination. Upon the termination of this
Lease or Tenant's right of possession, Tenant shall remove from the Premises and
Project its trade fixtures, furniture, moveable equipment and other personal
property, any improvements made by Tenant which Landlord elects pursuant to
Section 5D shall be removed by Tenant, and any improvements made by Tenant to
any portion of the Project other than the Premises. Unless otherwise specified
by Landlord at the time Landlord approves Tenant's Work, Tenant shall not be
required to remove any improvements to the Premises which are substantially
completed within six (6) months of the Building A Commencement Date. Tenant
shall repair all damage caused by the installation or removal of the foregoing
items. If Tenant does not timely remove such property, then Tenant shall be
conclusively presumed to have, at Landlord's election (i) conveyed such property
to Landlord without compensation or (ii) abandoned such property, and Landlord
may dispose of or store any part thereof in any manner at Tenant's sole cost,
without waiving Landlord's right to claim from Tenant all expenses arising out
of Tenant's failure to remove the property, and without liability to Tenant or
any other person. Landlord shall have no duty to be a bailee of any such
personal property. If Landlord elects abandonment, Tenant shall pay to Landlord,
upon demand, any expenses incurred for disposition.
6. USE OF PREMISES.
A. LIMITATION ON USE. Tenant shall use the Premises only for
the Permitted Use stated in the Schedule. Tenant shall not allow any use of the
Premises which will negatively affect the cost of coverage of Landlord's
insurance on the Project. Tenant shall not allow any inflammable or explosive
liquids or materials to be kept on the Premises except limited quantities used
in the conduct of Tenant's business and stored, used and disposed of in
accordance with applicable law. Tenant shall not permit any nuisance or waste to
occur on the Project or upon the Premises, or allow any offensive noise or odor
in or around the Project. At the end of each
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business day, or more frequently if necessary, Tenant shall deposit all garbage
and other trash (excluding any inflammable, explosive and/or hazardous
materials) in trash bins or containers approved by Landlord. If any governmental
authority shall deem the Premises to be a "place of public accommodation" under
the Americans with Disabilities Act or any other comparable law as a result of
Tenant's use, Tenant shall either modify its use to cause such authority to
rescind its designation or be responsible for any alterations, structural or
otherwise, required to be made to the Building or the Premises under such laws.
B. SIGNS. Tenant shall not place on any portion of the
Premises any sign, placard, lettering, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord which shall not be reasonably
withheld, so long as they comply with Landlord's then applicable signage
standards for the Project. Any approved signs shall strictly conform to all
Governmental Restrictions, any CC&R's recorded against the Project, and any sign
criteria which may be established by Landlord and in effect at the time, and
shall be installed (and removed upon the Termination Date) at Tenant's expense.
Tenant, at its sole cost, shall maintain such signs in good condition and
repair, including the repair of any damage caused to the Building or Project
upon Tenant's removal of such signs. Landlord current Signage Standards are
attached hereto as Exhibits F. Landlord agrees that page 1 of Exhibit F (i.e.,
Sign Type A Project Identification Sign) can be a name chosen by Tenant so long
as it has the name "Clarify" in it, and that Tenant may use the California
CalTrans standard "handicap" sign instead of the example shown on page 6 of
Exhibit F (i.e., Sign Type J). Landlord further agrees that Tenant shall have
the right, at Tenant's sole cost and expense, to install Tenant's name and logo
on the street monument sign base for each Building, and at one location on each
Building, subject to Landlord's prior written approval, which shall not be
unreasonably withheld so long as such signage complies with Landlord's then
applicable signage standards for the Project (i.e., Sign Type B) and any other
necessary governmental or private approvals.
C. PARKING. During the period in which Tenant leases all of
the Project Buildings hereunder, Tenant shall have the right to use all of the
parking spaces in the Project. During all other periods, Tenant shall have the
right to park in the Project's parking facilities in common with other tenants
of the Project upon terms and conditions, as may from time to time be
established by Landlord. Landlord shall not voluntarily impose a parking charge
or fee for the use of the parking facilities, but Landlord reserves the right to
pass through to Tenant (or to the user of such parking facilities) any parking
fees or any other charges required by any governmental or quasi-governmental
agency to be paid or collected by Landlord in connection with the use such
parking facilities. Tenant agrees not to overburden the parking facilities
(i.e., use more than its prorata share of the number of parking stalls indicated
on the Schedule) and agrees to cooperate with Landlord and other tenants in the
Project in the use of the parking facilities. Landlord reserves the right in its
discretion to determine whether the parking facilities are becoming crowded and
to allocate and assign parking spaces among Tenant and the other tenants in the
Project. Landlord shall not be liable to Tenant, nor shall this Lease be
affected, if any parking is impaired by moratorium, initiative, referendum, law,
ordinance, regulation or order passed, issued or made by any governmental or
quasi-governmental body. Landlord, at its sole cost, shall cause six (6) stalls
to be marked "visitor" and two (2) stalls to be marked
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"motorcycle" adjacent to the entrance of each Building.
D. PROHIBITION AGAINST USE OF ROOF AND STRUCTURE OF BUILDING.
During the period in which Tenant leases the entire space within a particular
Building, Tenant shall have access to the roof of such Building to perform its
obligations hereunder and for the installation, maintenance and repair of a
satellite dish, other telecommunications and/or HVAC equipment (collectively
"Roof Equipment") for Tenant's own use (i.e., Tenant shall not rent space on the
roof to third parties). Tenant shall not install any Roof Equipment on any of
the roofs without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Tenant shall obtain at its sole expense and comply
with all applicable Governmental Requirements and any reasonable installation
and screening requirements imposed by Landlord. Any work performed by Tenant on
the roof shall be subject to the terms and conditions set forth in Section 5
(i.e., the Alterations provision). Tenant shall be solely responsible for
repairing any damage to the roof and or Building caused by Tenant's
installation, operation or removal of such Roof Equipment. Upon the termination
of this Lease for any reason, or the expiration of this Lease as to such
Building, Tenant, at its sole cost and expense, shall at Landlord's request,
remove any or all of the Roof Equipment from the Building(s) and repair any
damage cause to the roof or Building during such removal.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply
with all Governmental Requirements applying to its use, maintenance and repair
of the Premises. Tenant shall also comply with all reasonable rules for the
Project which may be established and amended from time to time by Landlord. The
present rules and regulations are contained in Exhibit G. Failure by another
tenant to comply with the rules or failure by Landlord to enforce them shall not
relieve Tenant of its obligation to comply with the rules or make Landlord
responsible to Tenant in any way. Landlord shall use reasonable efforts to apply
the rules and regulations uniformly with respect to Tenant and any other tenants
in the Project under leases containing rules and regulations similar to this
Lease. In the event of alterations and repairs performed by Tenant, Tenant shall
comply with the provisions of Section 5 of this Lease. Notwithstanding the
foregoing, in the event a change in the Governmental Requirements occurs after
the date the applicable building permits are pulled for the Building Shells
which requires certain improvements or alterations to the structural components
of the Building, then Landlord shall make such structural improvements or
alterations, provided that the costs incurred by Landlord in performing such
improvements or alterations shall constitute an Included Capital Item for
purposes of Section 2C and be passed through to Tenant (and any other tenants in
such Building).
8. REPAIR AND MAINTENANCE.
A. LANDLORD'S OBLIGATIONS. Landlord shall keep in good order,
condition and repair (i) the structural parts of the Building, which structural
parts include only the foundation and subflooring of the Building and the
structural support system, the exterior walls and doors of the Building
(including the repair of any exterior door and window leaks, but excluding the
interior surfaces of exterior walls, windows, doors, ceiling and plateglass
which shall be maintained and repaired by Tenant), (ii) the roof membrane, and
(iii) subsurface plumbing, electrical, phones and gas lines running from the
street to each Building, and (iv) the common
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areas of the Project. The costs incurred by Landlord to perform the foregoing
obligations to the extent they are deemed "Operating Costs" (as defined in
Section 2C) shall be passed through to Tenant (and, if applicable, any other
tenants in the Project), except that any damage to any of the foregoing caused
by the negligence or intentional wrongful acts or omissions of Tenant or of
Tenant's agents, employees, contractors or invitees, or by reason of the failure
of Tenant to perform or comply with any terms of this Lease, or caused by Tenant
or Tenant's agents, employees, contractors or invitees during the performance of
any Work shall be repaired by Landlord, solely at Tenant's expense, or at
Landlord's election, such repairs shall be made by Tenant, at Tenant's expense,
with contractors approved by Landlord. It is an express condition precedent to
all obligations of Landlord to repair and maintain that Tenant shall have
notified Landlord of the need for such repairs or maintenance. Tenant waives the
provisions of Sections 1941 and 1942 of the California Civil Code and any
similar or successor law regarding Tenant's right to make repairs and deduct the
expenses of such repairs from the Rent due under this Lease. Notwithstanding the
foregoing, in the event of an emergency (including any condition posing eminent
risk of personal injury or property damage), Tenant shall have the right to
effect such repairs as may be necessary or, in Tenant's reasonable
determination, appropriate. Tenant shall use reasonable efforts to notify
Landlord prior to commencing any such repairs. Such repairs shall be performed
in a good and workmanlike manner. Landlord shall reimburse Tenant, within thirty
(30) days after presentation of invoices, for expenses actually incurred.
B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its
own expense clean, keep and maintain in good order, condition and repair every
part of the Premises (including Tenant's fixtures and personal property) which
is not within Landlord's obligation pursuant to Section 8A. Tenant's repair and
maintenance obligations shall include, all plumbing and sewage facilities within
the Premises, fixtures, interior walls and ceiling, floors, windows, doors,
entrances, plateglass, showcases, skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, electrical motors and all other appliances and equipment of every
kind and nature located in, upon or about the Premises. Tenant shall also be
responsible for all pest control within the Premises, and for all trash removal
and disposal for the Premises. Tenant shall obtain HVAC systems preventive
maintenance contracts with bimonthly or monthly service in accordance with
manufacturer recommendations, which shall be subject to the reasonable prior
written approval of Landlord and paid for by Tenant, and which shall provide for
and include replacement of filters, oiling and lubricating of machinery, parts
replacement, adjustment of drive belts, oil changes and other preventive
maintenance, including annual maintenance of duct work, interior unit drains and
caulking at sheet metal, and recaulking of jacks and vents on an annual basis.
Tenant shall have the benefit of all warranties available to Landlord regarding
the equipment in such HVAC systems. If Landlord reasonably determines that
Tenant is not performing adequately its maintenance obligations hereunder,
Landlord may elect to perform all repairs and maintenance itself, at Tenant's
expense, to the Building's mechanical, electrical, plumbing, automatic fire
extinguisher/sprinkler system and HVAC systems.
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. WAIVER OF CLAIMS. Landlord and Tenant, for themselves and
their respective employees, agents and insurers, hereby release each other from
any liability for
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personal injury, property damage, rental loss or business interruption
(including any claims arising by way of subrogation) that is caused by or
results from any risk insured against under any insurance policy maintained or
required to be maintained by such party. Each party shall notify its insurer of
the foregoing waiver and shall obtain any special endorsement, if required by
their insurer, to evidence compliance with the foregoing waiver.
B. INDEMNIFICATION. Tenant shall indemnify, defend and hold
harmless Landlord and its officers, directors, employees and agents against any
claim by any third party for injury to any person or damage to or loss of any
property occurring in or around the Project and arising from the use of the
Premises or from any other act, omission, negligence or intentional misconduct
of Tenant, its employees, agents or invitees, or Tenant's breach of its
obligations hereunder. Tenant's obligations under this section shall survive the
termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury or damage to person or the Premises to the extent caused by the
negligence or intentional misconduct of Landlord or any of Landlord's employees
or agents, or Landlord's breach of its obligations hereunder. Landlord's
obligations under this section shall survive the termination of this Lease.
C. TENANT'S INSURANCE. Tenant shall maintain insurance as
follows, with such other terms, coverages and insurers, as Landlord shall
reasonably require from time to time; provided such terms and conditions shall
not exceed those customarily required in similar buildings located in San Jose,
California:
(1) Commercial general liability insurance, with (a)
contractual liability including the indemnification provisions contained in this
Lease, (b) a severability of interest endorsement, (c) limits of not less than
Two Million Dollars ($2,000,000) combined single limit per occurrence and not
less than Two Million Dollars ($2,000,000) in the aggregate for bodily injury,
sickness or death, and property damage, and umbrella coverage of not less than
Five Million Dollars ($5,000,000).
(2) Property Insurance against "All Risks" of physical
loss covering the replacement cost of all improvements, fixtures and personal
property and business interruption. Tenant waives all rights of subrogation, and
Tenant's property insurance shall include a waiver of subrogation in favor of
Landlord.
(3) Workers' compensation or similar insurance in form
and amounts required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in favor of
Landlord and its agents.
Tenant's insurance shall be primary and not contributory to that carried
by Landlord, its
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agents, or mortgagee. Landlord, and if any, Landlord's building manager or
agent, mortgagee and ground lessor shall be named as additional insureds as
respects to insurance required of the Tenant in Section 9C(1). The company or
companies writing any insurance which Tenant is required to maintain under this
Lease, as well as the form of such insurance, shall at all times be subject to
Landlord's reasonable approval, and any such company shall be licensed to do
business in the state in which the Building is located. Such insurance companies
shall have a A.M. Best rating of A VI or better.
(4) Tenant shall cause any contractor of Tenant
performing work on the Premises to maintain insurance as follows, with such
other terms, coverages and insurers, as Landlord shall reasonably require from
time to time:
(a) Commercial General Liability Insurance,
including contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage endorsement, and
contractor's protective liability coverage, to afford protection with limits,
for each occurrence, of not less than One Million Dollars ($1,000,000) with
respect to personal injury, death or property damage.
(b) Workers' compensation or similar insurance
in form and amounts required by law, and Employer's Liability with not less than
the following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation
provision in favor of Landlord and its agents.
Tenant's contractor's insurance shall be primary and not
contributory to that carried by Tenant, Landlord, their agents or mortgagees.
Tenant and Landlord, and if any, Landlord's building manager or agent, mortgagee
or ground lessor shall be named as additional insured on Tenant's contractor's
insurance policies.
D. INSURANCE CERTIFICATES. Tenant shall deliver to Landlord
certificates evidencing all required insurance no later than five (5) days prior
to the Commencement Date and each renewal date. Each certificate will provide
for thirty (30) days prior written notice of cancellation to Landlord and
Tenant.
E. LANDLORD'S INSURANCE. Landlord shall maintain "All-Risk"
property insurance at replacement cost, including loss of rents, on the
Building, and commercial general liability insurance policies covering the
common areas of the Project, each with such terms, coverages and conditions as
are normally carried by reasonably prudent owners of properties similar to the
Project. With respect to property insurance, Landlord and Tenant mutually waive
all rights of subrogation, and the respective "All-Risk" coverage property
insurance policies carried by Landlord and Tenant shall contain enforceable
waiver of subrogation endorsements.
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10. FIRE AND OTHER CASUALTY.
A. TERMINATION. If a fire or other casualty causes
substantial damage to any Building, the Premises or outside areas, and
sufficient insurance proceeds will be available to Landlord to cover the cost of
any restoration, Landlord shall engage a registered architect to certify within
one (1) month of the casualty to both Landlord and Tenant the amount of time
needed to restore the Building, the Premises and outside areas substantially to
the condition they were in immediately prior to such casualty, using standard
working methods without the payment of overtime and other premiums. If the time
needed exceeds six (6) months from the date of the casualty, or two (2) months
therefrom if the restoration would begin during the last twelve (12) months of
the Lease (unless Tenant exercises any valid Extension Option), then either
Landlord or Tenant may terminate this Lease by notice to the other party within
ten (10) days after the notifying party's receipt of the architect's
certificate. If sufficient insurance proceeds, plus any contribution that either
party may voluntarily offer, will not be available to Landlord to cover the cost
of any restoration to the Building or the Premises, Landlord may terminate this
Lease by written notice to Tenant. Any termination pursuant to this Section 10A
shall be effective thirty (30) days from the date of such termination notice and
Rent shall be paid by Tenant to that date, with an abatement for any portion of
the Premises which has been untenantable after the casualty.
B. RESTORATION. If a casualty causes damage to the Building
or the Premises but this Lease is not terminated for any reason, then subject to
the rights of any mortgagees or ground lessors, Landlord shall obtain the
applicable insurance proceeds, plus any contribution that either party may
voluntarily offer, and diligently restore the Building, the Premises and the
outside areas subject to current Governmental Requirements. Landlord's
obligation, should it elect or be obligated to repair or rebuild, shall be
limited to the basic Building or Premises (i.e., the "Building Shell", as
defined elsewhere herein, and Landlord's standard tenant improvements, which in
no event shall exceed $25 per square foot), as the case may be, and Tenant
shall, at Tenant's expense, replace or fully repair its damaged improvements
(including any Tenant Improvements in excess of the building standard), personal
property and fixtures, to the extent deemed appropriate by Tenant. Rent shall be
abated on a per diem basis during the restoration for any portion of the
Premises which is untenantable. Tenant shall not be entitled to any compensation
or damages from Landlord for loss of the use of the Premises, damage to Tenant's
personal property and trade fixtures or any inconvenience occasioned by such
damage, repair or restoration. Tenant hereby waives the provisions of Section
1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code, and the provisions of any similar law hereinafter enacted.
11. EMINENT DOMAIN. If a part of the Project is taken by eminent
domain or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business (including a
substantial taking of the parking area of the Project), then either party may
terminate this Lease effective as of the date of the taking. If any substantial
portion of the Project is taken without affecting the Premises, then Landlord
may terminate this Lease as of the date of such taking unless Tenant consents in
writing to maintain this Lease in effect. Rent shall abate from the date of the
taking in proportion to any part of the Premises taken. In the event of a
partial taking that does not result in the termination of this Lease, Landlord
shall promptly reconstruct the affected portions of the Project into an
architecturally
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complete unit, including, for example, replacement curbs, gutters, driveways,
landscaping, parking stalls, lighting, sidewalks, demising walls, doorways and
lavatories. The entire award for a taking of any kind shall be paid to Landlord,
and Tenant shall have no right to share in the award; provided, however, that
nothing contained herein shall be deemed to give Landlord any interest in or
require Tenant to assign to Landlord any separate award made to Tenant for the
taking of Tenant's personal property, trade fixtures, the unamortized balance of
any Tenant Improvements or Work paid for by Tenant, loss of goodwill or its
relocation costs. All obligations accrued to the date of the taking shall be
performed by the party liable to perform said obligations as set forth herein.
12. RIGHTS RESERVED TO LANDLORD. Landlord may exercise at any time
any of the following rights respecting the operation of the Project without
liability to Tenant of any kind:
A. Name. Upon not less than sixty (60) days prior notice to
Tenant to change the name of all or any of the Buildings or the Project, or the
street address of the Buildings or the suite number(s) of the Premises.
Notwithstanding the foregoing, Landlord agrees that Tenant shall have the right
to change the name of the Project during any period in which it leases all of
the Project Buildings, provided that such name includes the "Clarify" name in
it. In the event Tenant leases two or more of the Buildings, but less than all
of the Project Buildings, then Landlord shall have the right to change the name
of the Project so long as a generic name is used (i.e., Landlord shall not name
the Project after another tenant in the Project). In the event Tenant leases
less than two of the Project Buildings, Landlord shall have the right to change
the name of the Project to anything (including one which includes the name of
another tenant in the Project). In addition, if Tenant is successful in getting
the street address changed for Buildings C and D from West Trimble Road to
Orchard Parkway, then Landlord agrees that it shall not change the address of
Buildings C and D during any period in which all of the space in such Buildings
is leased by Tenant.
B. Signs. To install, modify and/or maintain any signs on the
exterior and in the interior of the Buildings or on the Project, and to approve
at its reasonable discretion, prior to installation, any of Tenant's signs in
the Premises visible from the common areas or the exterior of the Buildings,
subject to Tenant's signage rights in Section 6.B. Notwithstanding the
foregoing, during any period in which Tenant leases all of the Project
Buildings, any exterior signs which Landlord wishes to install at the Project to
the extent they are not contemplated in Exhibit F shall be subject to Tenant's
reasonable approval. Interior signage within any Building shall be subject to
Landlord's prior written approval only when such Building is leased by Tenant
and another entity unrelated to Tenant. Landlord shall be permitted to post "For
Lease" signs (or similar such signs) during the last nine (9) months of the
Term, or upon Landlord's recapture of any space, or upon Tenant's default in the
performance of its obligations hereunder (beyond any applicable notice and cure
period).
C. Window Treatments. To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior common area.
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D. Keys. To retain and use at any time passkeys to enter the
Premises or any door within the Premises subject to Tenant's reasonable security
requirements. Tenant shall not alter or add any lock or bolt without providing a
key to Landlord.
E. Access. To have access to the Premises with twenty four
hour prior notice (except in the case of an emergency in which case Landlord
shall have the right to immediate access) to inspect the Premises, and to
perform its obligations, or make repairs, alterations, additions or
improvements, as permitted by this Lease.
F. Preparation for Reoccupancy. To decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and
time and manner of movement within the Building of any safe, central filing
system or other heavy article of Tenant's property. Tenant shall move its
property entirely at its own risk.
H. Show Premises. To show the Premises to prospective
purchasers, brokers, lenders, mortgagees, investors, rating agencies or others
and, during the last nine (9) months of the Term, to prospective tenants, at any
reasonable time, provided that Landlord gives prior notice to Tenant and does
not materially interfere with Tenant's use of the Premises.
I. Use of Lockbox. To designate a lockbox collection agent
for collections of amounts due Landlord. In that case, the date of payment of
Rent or other sums shall be the date of the agent's receipt of such payment or
the date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, in the event Tenant
defaults hereunder, Landlord may reject any payment for all purposes as of the
date of receipt or actual collection by mailing to Tenant within 21 days after
such receipt or collection a check equal to the amount sent by Tenant.
J. Repairs and Alterations. To make repairs or alterations to
the Project and in doing so transport any required material through the
Premises, to close entrances, doors, corridors, elevators and other facilities
in the Project, to open any ceiling in the Premises, or to temporarily suspend
services or use of common areas in the Building. Landlord may perform any such
repairs or alterations during ordinary business hours, except that Tenant may
require any work in the Premises to be done after business hours if Tenant pays
Landlord for overtime and any other expenses incurred. Landlord may do or permit
any work on any nearby building, land, street, alley or way.
K. Landlord's Agents. If Tenant is in default under this
Lease, possession of Tenant's funds or negotiation of Tenant's negotiable
instrument by any of Landlord's agents shall not waive any breach by Tenant or
any remedies of Landlord under this Lease.
L. Building Services. To install, use and maintain through
the Premises, pipes, conduits, wires and ducts serving the Building, provided
that such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
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Landlord shall give Tenant reasonable notice prior to exercising
any right requiring the physical presence of Landlord or its agents, employees,
contractors or invitees on the Project to inspect or to perform work in the
Premises. All work in or affecting the Premises shall be done in a manner which
minimizes the interference with the conduct of Tenant's business. Landlord and
its agents, employees, contractors, and invitees shall at all times comply with
Tenant's reasonable security requirements. All debris resulting from such
activities shall be removed daily, all tools, equipment, supplies and materials
shall be removed from the Premises promptly upon completion of work, and
Landlord shall repair any damage to the Premises and Tenant's improvements,
alterations, fixtures, equipment and other property resulting from such
activities. No alteration, addition, repair or modification of or to the
Premises, Building or Project shall (i) decrease the size of or adversely affect
access to the Premises; (ii) materially and adversely affect access to or
usability of the parking areas of the Project, or materially and permanently
reduce the number of parking spaces available to Tenant, or (iii) adversely
affect the appearance of the Project.
13. TENANT'S DEFAULT. Any of the following shall constitute a default
by Tenant:
A. Rent Default. Tenant fails to pay any Rent within five (5)
days after notice that such payment was not paid when due, provided that Tenant
acknowledges that such notice shall be in lieu of and not in addition to any
notice required to be given by Landlord to commence an unlawful detainer action
(or similar eviction proceeding) under the then applicable law;
B. Assignment/Sublease or Hazardous Substances Default.
Tenant defaults in its obligations under Section 18 Assignment and Sublease or
Section 29 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any
other obligation to Landlord under this Lease, and this failure continues for
fifteen (15) days after written notice from Landlord, except that if Tenant
begins to cure its failure within the fifteen (15) day period but cannot
reasonably complete its cure within such period, then, Tenant shall not be in
default so long as Tenant continues to diligently attempt to cure its failure
the fifteen (15) day period shall be extended to ninety (90) days, or such
lesser period as is reasonably necessary to complete the cure;
D. Credit Default. One of the following credit defaults
occurs:
(1) Tenant commences any proceeding under any law
relating to bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official for the
Tenant or for any substantial part of its property, or any such proceeding is
commenced against Tenant and either remains undismissed for a period of thirty
(30) days or results in the entry of an order for relief against Tenant which is
not fully stayed within thirty (30) days after entry;
(2) Tenant becomes insolvent or bankrupt, does not
generally pay its debts as they become due, or admits in writing its inability
to pay its debts, or makes a general
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assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under
process of law against Tenant's leasehold interest.
E. Vacation or Abandonment Default. Tenant vacates or
abandons the Premises.
14. LANDLORD REMEDIES. Upon a default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Lease, to which Landlord may resort cumulatively
or in the alternative:
A. Termination of Lease or Possession. If Tenant defaults,
Landlord may elect by notice to Tenant either to terminate this Lease or to
terminate Tenant's possession of the Premises without terminating this Lease. In
either case, Tenant shall immediately vacate the Premises and deliver possession
to Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant. In
the latter case, this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
B. Possession Termination Damages. If Landlord elects to
terminate Tenant's possession without terminating this Lease and Landlord takes
possession of the Premises itself, then Landlord may relet for Tenant's account
all or any portion of the Premises for such rent, length of time and other terms
as Landlord in its sole discretion shall determine, without any obligation to do
so prior to renting other vacant areas in the Building. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the Premises
or any part thereof, including, without limitation, broker's commissions,
expenses of cleaning and reasonable costs of redecorating the Premises required
by the reletting and like costs. 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 received by Landlord from any releasing of the Premises. No act by Landlord
other than giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.
C. Lease Termination Damages. If Landlord elects to terminate
this Lease, then this Lease shall terminate on the date for termination set
forth in such notice. Tenant shall immediately vacate the Premises and deliver
possession to Landlord, and Landlord may repossess the Premises and may, at
Tenant's sole cost, remove any of Tenant's signs and any of its other property,
without relinquishing its right to receive Rent or any other right against
Tenant. On termination, Landlord has the right to recover from Tenant as
damages:
(1) The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus
(2) The worth at the time of award of the amount by
which the unpaid
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Rent and other sums due and payable which after termination until the time of
award exceeds the amount of such Rent loss that Tenant proves could have been
reasonably avoided; plus
(3) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such Rent loss that Tenant proves
could be reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, to the condition conforming to that which
is required under Section 15 hereof, cleaning, altering or rehabilitating the
Premises or any portion thereof, including such acts for reletting to a new
tenant or tenants; (iii) for leasing commissions; or (iv) for any other costs
reasonably necessary or appropriate to relet the Premises; plus
(5) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.
The "worth at the time of award" of the amounts referred to in Sections
14C(1) and 14C(2) is computed by allowing interest at the maximum rate permitted
by law on the unpaid rent and other sums due and payable from the termination
date through the date of award. The "worth at the time of award" of the amount
referred to in Section 14C(3) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, or under any other
present or future law, in the event Tenant is evicted or Landlord takes
possession of the Premises by reason of any default of Tenant hereunder.
D. Landlord's Remedies Cumulative. All of Landlord's remedies
under this Lease shall be in addition to all other remedies Landlord may have at
law or in equity. Waiver by Landlord of any breach of any obligation by Tenant
shall be effective only if it is in writing, and shall not be deemed a waiver of
any other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment. Landlord may advance such monies and take such other
actions for Tenant's account as reasonably may be required to cure or mitigate
any default by Tenant. Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY
IN THE EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH
THIS LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION
WITH THIS LEASE IN A FEDERAL OR STATE
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COURT LOCATED IN CALIFORNIA, CONSENTS TO THE JURISDICTION OF SUCH COURTS, AND
WAIVES ANY RIGHT TO HAVE ANY PROCEEDING TRANSFERRED FROM SUCH COURTS ON THE
GROUND OF IMPROPER VENUE OR INCONVENIENT FORUM.
15. SURRENDER. Upon the expiration or earlier termination of this
Lease for any reason, Tenant shall surrender the Premises to Landlord in its
condition existing as of the Commencement Date, except for (i) normal wear and
tear, (ii) damage by fire or other casualty, (iii) effects of any condemnation,
(iv) any Work (as defined in Section 5A) not required to be removed by Tenant,
and (v) Hazardous Substances for which Tenant is not responsible under this
Lease, with all interior walls repaired and repainted if damaged, all carpets
vacuumed, all broken, marred or nonconforming acoustical ceiling tiles replaced,
all windows washed, the plumbing and electrical systems and lighting in good
order and repair, including replacement of any burned out or broken light bulb
or ballasts, the HVAC equipment serviced and repaired by a reputable and
licensed service firm acceptable to Landlord, and all floors cleaned and waxed,
all to the reasonable satisfaction of Landlord. Tenant shall remove from the
Premises all Tenant's personal property and all of Tenant's Work required to be
removed pursuant to Section 5E, and restore the Premises to the condition which
existed prior to their installation (or as otherwise specified by Landlord in
its approval of such Work). If Tenant fails to remove any alterations and/or
Tenant's personal property, and such failure continues after the termination of
this Lease, Landlord may retain or dispose of such property and all rights of
Tenant with respect to it shall cease, or Landlord may place all or any portion
of such property in public storage for Tenant's account. Tenant shall be liable
to Landlord for costs of removal of any such alterations and Tenant's personal
property and storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord. If the Premises are not so surrendered at the
termination of this Lease, Tenant shall indemnify Landlord against all loss or
liability, including attorneys' fees and costs, resulting from delay by Tenant
in so surrendering the Premises.
16. HOLDOVER. Tenant shall have no right to holdover possession of
the Premises after the expiration or termination of this Lease without
Landlord's prior written consent which Landlord may withhold in its sole and
absolute discretion. If, however, Tenant retains possession of any part of the
Premises after the Term, Tenant shall become a tenant at sufferance only, for
the entire Premises upon all of the terms of this Lease as might be applicable
to such tenancy, except that Tenant shall pay all of the Base Rent, Operating
Cost Share Rent and Tax Share Rent at 150% of the rate in effect immediately
prior to such holdover, computed on a daily basis for each day Tenant remains in
possession. Tenant shall also pay Landlord all of Landlord's direct and
consequential damages resulting from Tenant's holdover. No acceptance of Rent or
other payments by Landlord under these holdover provisions shall operate as a
waiver of Landlord's right to regain possession or any other of Landlord's
remedies.
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any
present or future ground lease or mortgage respecting the Project, and any
amendments to such ground lease or mortgage, at the election of the ground
lessor or mortgagee as the case may be, effected by notice
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to Tenant in the manner provided in this Lease. The subordination shall be
effective upon such notice, but at the request of Landlord or ground lessor or
mortgagee, Tenant shall within ten (10) business days of the request, execute
and deliver to the requesting party any reasonable documents provided to
evidence the subordination. Any mortgagee has the right, at its sole option, to
subordinate its mortgage to the terms of this Lease, without notice to, nor the
consent of, Tenant. At any time that the Project is made subject to any ground
lease or mortgage, Landlord shall use commercially reasonable efforts to cause
the mortgagee or ground lessor to deliver to Tenant a subordination
non-disturbance agreement ("SNDA") reasonably acceptable to Tenant, providing
that so long as Tenant is not in default under this Lease after the expiration
of any applicable notice and cure periods, Tenant may remain in possession of
the Premises under the terms of this Lease, even if the ground lessor should
terminate the ground lease or if the mortgagee or its successor should acquire
Landlord's title to the Project. Landlord shall have no obligation to
participate in or otherwise engage in any negotiations regarding the SNDA, but
if Landlord does so, at Tenant's request, then Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with such negotiations within
thirty (30) days of Tenant's receipt of an invoice therefor.
B. Termination of Ground Lease or Foreclosure of Mortgage. If
any ground lease is terminated or mortgage foreclosed or deed in lieu of
foreclosure given and the ground lessor, mortgagee, or purchaser at a
foreclosure sale shall thereby become the owner of the Project, Tenant shall
attorn to such ground lessor or mortgagee or purchaser without any deduction or
setoff by Tenant, and this Lease shall continue in effect as a direct lease
between Tenant and such ground lessor, mortgagee or purchaser. The ground lessor
or mortgagee or purchaser shall be liable as Landlord only during the time such
ground lessor or mortgagee or purchaser is the owner of the Project. At the
request of Landlord, ground lessor or mortgagee, Tenant shall execute and
deliver within ten (10) business days of the request any document furnished by
the requesting party to evidence Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall be
responsible for the return of any security deposit by Tenant only to the extent
any security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any
ground lease and mortgage identified with name and address of ground lessor or
mortgagee in Exhibit D to this Lease (as the same may be amended from time to
time by written notice to Tenant). Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Exhibit or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. If Landlord fails to cure such default
within the required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Tenant shall not begin
to enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 17, "mortgage" shall
include "trust
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deed" and "deed of trust", and "mortgagee" shall include "trustee",
"beneficiary" and the mortgagee of any ground lessee, and "ground lessor,"
"mortgagee," and "purchaser at a foreclosure sale" shall include, in each case,
all of its successors and assigns, however remote.
18. ASSIGNMENT AND SUBLEASE.
A. In General. Except in the case of a "Permitted Transfer"
(as defined in Section 18F below), Tenant shall not, without the prior consent
of Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Tenant shall remain primarily liable for all of its
obligations under this Lease, notwithstanding any assignment or transfer. No
consent granted by Landlord shall be deemed to be a consent to any subsequent
assignment or transfer, lien or encumbrance, sublease or occupancy. Tenant shall
pay all of Landlord's reasonable attorneys' fees and other expenses incurred in
connection with any consent requested by Tenant or in reviewing any proposed
assignment or subletting (not to exceed $1,500.00, as may be adjusted for
increases in CPI during the Term), unless Tenant challenges such disapproval or
conditional approval. Any assignment or transfer, grant of lien or encumbrance,
or sublease or occupancy without Landlord's prior written consent shall be void.
If Tenant shall assign this Lease or sublet the Premises in its entirety other
than to a "Tenant Affiliate" as defined in Section 18F below, any rights of
Tenant to renew this Lease, extend the Term or to lease additional space in the
Project shall be extinguished thereby and will not be transferred to the
assignee or subtenant, all such rights being personal to the Tenant named herein
and its permitted transferees.
B. Landlord's Consent. Landlord will not unreasonably
withhold its consent to any proposed assignment or subletting. It shall be
reasonable for Landlord to withhold its consent to any assignment or sublease if
(i) Tenant is in default under this Lease (beyond any applicable notice and cure
period), (ii) the financial responsibility, nature of business, and character of
the proposed assignee or subtenant are not all reasonably satisfactory to
Landlord, (iii) in the reasonable judgment of Landlord the purpose for which the
assignee or subtenant intends to use the Premises (or a portion thereof) is not
in keeping with Landlord's reasonable standards for the Building or are in
violation of the terms of this Lease or any other leases in the Project, or (iv)
the proposed assignee or subtenant is a government entity. The foregoing shall
not exclude any other reasonable basis for Landlord to withhold its consent.
C. Procedure. Tenant shall notify Landlord of any proposed
assignment or sublease at least fifteen (15) days prior to its proposed
effective date. The notice shall include the name and address of the proposed
assignee or subtenant, its corporate affiliates in the case of a corporation and
its partners in a case of a partnership, an execution copy of the proposed
assignment or sublease agreement, and sufficient information to permit Landlord
to determine the financial responsibility and character of the proposed assignee
or subtenant. Landlord shall keep all such information confidential. As a
condition to any effective assignment of this Lease, the assignee shall execute
and deliver in form satisfactory to Landlord at least fifteen (15) days prior to
the effective date of the assignment, an assumption of all of the obligations of
Tenant under this
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Lease. As a condition to any effective sublease, subtenant shall execute and
deliver in form satisfactory to Landlord at least fifteen (15) days prior to the
effective date of the sublease, an agreement to comply with all of Tenant's
obligations under this Lease, and at Landlord's option, an agreement (except for
the economic obligations which subtenant will undertake directly to Tenant) to
attorn to Landlord under the terms of the sublease in the event this Lease
terminates before the sublease expires. Landlord shall respond in writing within
ten (10) days after receipt of the foregoing information. Landlord's failure to
respond timely shall constitute Landlord's disapproval. Any disapproval shall
state the reasons therefor.
D. Excess Payments If Tenant shall assign this Lease or
sublet any part of the Premises for consideration in excess of the pro-rata
portion of Rent applicable to the space subject to the assignment or sublet,
then Tenant shall pay to Landlord as Additional Rent fifty percent (50%) of any
such excess immediately upon receipt; provided that Tenant shall first be
entitled to recover the reasonable brokerage commissions, advertising, legal
fees and alteration costs actually incurred by Tenant in connection with such
sublet.
E. Recapture. Except in the case of Permitted Transfer, if
Tenant proposes to assign this Lease or sublet all or any portion of the
Premises for the balance of the Term, Landlord, may, by giving written notice to
Tenant within fifteen (15) days after receipt of Tenant's notice of assignment
or subletting, terminate this Lease with respect to the space described in
Tenant's notice, as of the effective date of the proposed assignment or sublease
and all obligations under this Lease as to such space shall expire except as to
any obligations that expressly survive any termination of this Lease.
F. Permitted Transfers to Affiliates. If no default on the part
of Tenant has occurred and is continuing (after notice and expiration of
applicable cure periods), Tenant may assign this Lease or sublet any portion of
the Premises (hereinafter collectively referred to as a "Permitted Transfer") to
(i) a parent or subsidiary of Tenant, or an entity under common control with
Tenant, (ii) an entity into which Tenant is merged or consolidated, (iii) an
entity to which substantially all of Tenant's assets are transferred, (iv) any
independent contractors under contract to provide services to or for the benefit
of Tenant, including vending machine companies, food service providers and
consultants who are providing services to Tenant, or (v) an association or joint
venture in which Tenant has a material interest as evidenced in a written
partnership or joint venture agreement (collectively, "Tenant Affiliate"),
without first obtaining Landlord's written consent and without regard to the
recapture right in Section 18E, if Tenant notifies Landlord at least ten (10)
business days prior to the Permitted Transfer and provides Landlord with
information satisfactory to Landlord in order to determine the net worth both of
the successor entity and of Tenant immediately prior to such assignment, and
showing the net worth of the successor to be at least equal to the net worth of
Tenant, and in the case of a Permitted Transfer to an association or joint
venture in which Tenant has a material interest, a copy of the executed
partnership or joint venture agreement which documents that Tenant has a
material interest in such association or joint venture.
19. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer
its interest in the Project or this Lease, Landlord shall be released of any
obligations of Landlord under this Lease occurring after such transfer, except
the obligation to return to Tenant any
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security deposit not delivered to its transferee, and Tenant shall look solely
to Landlord's successors for performance of such obligations provided that the
transferee of Landlord's interest shall have assumed and agreed to observe and
perform, in writing and for Tenant's benefit, all of the Landlord's obligations
under this Lease arising after the date of such transfer. This Lease shall not
be affected by any such transfer.
20. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) business
days of receiving a request from the other party, execute, acknowledge in
recordable form, and deliver to the other party or its designee a certificate
stating, subject to a specific statement of any applicable exceptions, that the
Lease as amended to date is in full force and effect, that the Tenant is paying
Rent and other charges on a current basis, and that to the best of the knowledge
of the certifying party, the other party has committed no uncured defaults and
has no offsets or claims. The certifying party may also be required to state the
date of commencement of payment of Rent, the Commencement Date, the Termination
Date, the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters concerning the status
of the Lease as may be reasonably requested. Failure to deliver such statement
within the time required shall be conclusive evidence against the party which
failed to deliver such statement (the "Non-certifying Party") that this Lease,
with any amendments identified by the requesting party, is in full force and
effect, that there are no uncured defaults by the requesting party, that not
more than one month's Rent has been paid in advance (subject to any adjustments
for Operating Cost Share Rent and Tax Share Rent), that the Tenant has paid the
security deposit specified in this Lease, and that the Non-certifying Party has
no claims or offsets against the requesting party.
21. LEASE DEPOSIT. Tenant shall deposit with Landlord on the date
Tenant executes and delivers this Lease to Landlord the cash sums set forth in
the Schedule for both Prepaid Rent and Security Deposit (collectively, the
"Lease Deposit"). The Prepaid Rent shall be applied by Landlord against the
first full month's Base Rent payment obligation hereunder. The Security Deposit
shall be held by Landlord during the Term as security for the performance of all
of Tenant's obligations hereunder. If Tenant defaults under this Lease, Landlord
may apply all or any part of the Security Deposit for the payment of any Rent or
other sum in default, the repair of any damage to the Premises caused by Tenant
or the payment of any other amount which Landlord may spend or become obligated
to spend by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default to the
full extent permitted by law. Tenant hereby waives any restriction on the use or
application of the Security Deposit by Landlord as set forth in California Civil
Code Section 1950.7. To the extent any portion of the Security Deposit is used,
Tenant shall within five (5) days after demand from Landlord restore the deposit
to its full amount. Landlord may keep the Security Deposit in its general funds
and shall not be required to pay interest to Tenant on the deposit amount. If
Tenant shall perform all of its obligations under this Lease and return the
Premises to Landlord at the end of the Term, Landlord shall return all of the
remaining Security Deposit to Tenant within thirty (30) days after the end of
the Term. The Security Deposit shall not serve as an advance payment of Rent or
a measure of Landlord's damages for any default under this Lease.
If Landlord transfers its interest in the Project or this Lease,
Landlord may transfer the Security Deposit to its transferee. Upon such
transfer, Landlord shall have no further obligation
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to return the Security Deposit to Tenant, and Tenant's right to the return of
the Security Deposit shall apply solely against Landlord's transferee.
22. FORCE MAJEURE. Neither party shall be in default under this Lease
to the extent such party is unable to perform any of its obligations on account
of any prevention, delay, stoppage due to strikes, lockouts, inclement weather,
labor disputes, inability to obtain labor, materials, fuels, energy or
reasonable substitutes therefor, governmental restrictions, regulations,
controls, actions or inaction, civil commotion, fire or other acts of God,
national emergency, or any other cause of any kind beyond the reasonable control
of such party (except financial inability) (collectively "Force Majeure").
23. INTENTIONALLY OMITTED.
24. NOTICES. Except for construction related notices during the
Construction Period as described below, all notices, consents, approvals and
similar communications to be given by one party to the other under this Lease,
shall be given in writing, mailed or personally delivered as follows:
A. Landlord. To Landlord as follows:
CarrAmerica Realty Corporation
1810 Gateway Drive, Suite 150
San Mateo, California 94404
Attn: Market Officer
with a copy to: CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
Prior to Commencement Date:
Clarify Inc.
2125 O'Nel Drive
San Jose, California 95131-2032
Attn: Ted Lewis
After Commencement Date:
Clarify Inc.
106 West Trimble Road
San Jose, California
Attn: Business Operations Manager
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or to such other person at such other address as Tenant may designate by notice
to Landlord.
Mailed notices shall be sent by United States certified or registered mail, or
by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
Notwithstanding the foregoing, Landlord and Tenant agree that during the period
in which the construction of the Building Shells and Tenant Improvements is
occurring (the "Construction Period"), that each party shall designate a person
to whom all notices regarding such construction shall be sent. The parties
further agree that such notices may be sent during the Construction Period via
facsimile machine to the fax numbers indicated below and that such notices shall
be deemed received by the other party on the day such notice is sent, provided
that the sending party receives and retains confirmation that transmission to
the other party's fax number was successful.
C. Landlord. To Landlord as follows:
CarrAmerica Realty Corporation
1810 Gateway Drive, Suite 150
San Mateo, California 94404
Attn: Virginia Belsheim
Fax No.: (650) 655-6803
D. Tenant. To Tenant as follows:
Clarify Inc.
2125 O'Nel Drive
San Jose, California 95131-2032
Attn: Gary Silva
Fax: (408) 573-3001
At the end of the end of the Construction Period (and in the case of all
non-construction related notices during the entire Term) notices shall be
delivered as provided in Sections A and B, above.
25 QUIET POSSESSION. So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord, subject to all
of the terms of this Lease.
26 REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has
not dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Landlord shall
pay the commission due the broker(s) listed in the Schedule in accordance with
Landlord's standard leasing commission policies and procedures.
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Tenant shall indemnify and defend Landlord against any claims for commission or
fees made by any other broker or third party claiming through or on behalf of
Tenant in connection with this Lease.
27. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
assignment contained in Section 18, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by
Tenant under this Lease which are due upon demand or which are due in advance
(such as Base Rent), Tenant shall pay to Landlord any amount for which Landlord
renders a statement of account within ten (10) days of Tenant's receipt of
Landlord's statement.
C. Meaning of "Landlord," "Re-Entry," "including" and
"Affiliate". The term "Landlord" means only the owner of the Project and the
lessor's interest in this Lease from time to time. The words "re-entry" and
"re-enter" are not restricted to their technical legal meaning. The words
"including" and similar words shall mean "without limitation." The word
"affiliate" shall mean a person or entity controlling, controlled by or under
common control with the applicable entity. "Control" shall mean the power
directly or indirectly, by contract or otherwise, to direct the management and
policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each
provision of this Lease.
E. No Option. This document shall not be effective for any
purpose until it has been executed and delivered by both parties; execution and
delivery by one party shall not create any option or other right in the other
party.
F. Severability. The unenforceability of any provision of
this Lease shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all
respects by the laws of the state in which the Project is located, without
regard to the principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in
any way reasonably requested by a mortgagee which does not cause increased
expense to Tenant or otherwise materially adversely affect Tenant's rights or
interests under this Lease.
I. No Oral Modification. No modification of this Lease shall
be effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its
obligations under this Lease, Tenant shall notify Landlord in writing and shall
take no action respecting such breach so long as Landlord promptly (but in any
event within ten (10) days after receipt of such notice)
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<PAGE> 40
begins to cure the breach and diligently pursues such cure to its completion.
Landlord may cure any default by Tenant upon notice to Tenant; any expenses
incurred shall become Additional Rent due from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no
effect on the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the
other that it has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce
any of its remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all
Appendices, Schedules and Exhibits constitutes the entire agreement between the
parties. No representations or agreements of any kind have been made by either
party which are not contained in this Lease.
O. Landlord's Title. Landlord's title shall always be
paramount to the interest of the Tenant, and nothing in this Lease shall empower
Tenant to do anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this
Lease any rights to light and air in connection with the Project.
Q. Singular and Plural. Wherever appropriate in this Lease, a
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.
R. No Recording by Tenant. Tenant shall not record in any
public records any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this
Lease any exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of
construction that ambiguities are resolved against the drafting party shall not
apply to this Lease.
U. Survival. All obligations of Landlord and Tenant under
this Lease which are required to be, but are not, performed prior to the
expiration or termination of the Lease and the indemnity provisions of this
Lease shall survive the termination of this Lease.
V. Rent Not Based on Income. No Rent or other payment in
respect of the Premises shall be based in any way upon net income or profits
from the Premises. Tenant may not enter into or permit any sublease or license
or other agreement in connection with the Premises
39
<PAGE> 41
which provides for a rental or other payment based on net income or profit.
W. Building Manager and Service Providers. Landlord may
perform any of its obligations under this Lease through its employees or third
parties hired by the Landlord.
X. Late Charge and Interest on Late Payments. Without
limiting the provisions of Section 13A, if Tenant fails to pay any installment
of Rent or other charge to be paid by Tenant pursuant to this Lease within five
(5) business days after the same becomes due and payable, then Tenant shall pay
a late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute Additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
Y. Tenant's Financial Statements. Within ten (10) days after
Landlord's written request therefor, Tenant shall deliver to Landlord the
current publicly available financial statements of Tenant, and financial
statements of the two (2) years prior to the current financial statements year,
with, if such is Tenant's customary practice with respect to such financial
statements, an opinion of a certified public accountant (provided that interim
reports need not be audited), including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in accordance with
generally accepted accounting principles consistently applied.
Z. Attorneys' Fees. If either party shall bring any action or
legal proceeding for damages for an alleged breach of any provision of this
Lease to recover Rent or other sums due, to terminate the tenancy of the
Premises or to enforce, protect or establish any term, condition or covenant of
this Lease or right of either party, the prevailing party shall be entitled to
recover, as a part of the action or proceedings, or in a separate action brought
for that purpose, reasonable attorneys' fees and related court costs, including
expert witness fees, as may be fixed by the court or jury. The prevailing party
shall be the party that obtains substantially the relief which was sought.
28. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel
at any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
reasonable amendment proposed by Landlord to avoid such income, so long as the
amendment does not alter the timing or amount of any payments required under
this Lease or require Tenant to accept fewer services from Landlord than this
Lease provides or otherwise materially and adversely affect Tenant's rights and
interests under this Lease. Landlord shall reimburse Tenant upon demand for
Tenant's reasonable costs to effect such amendment.
29. HAZARDOUS SUBSTANCES.
A. Prohibition Against Hazardous Substances. Tenant shall not
cause or permit any Hazardous Substances to be brought upon, produced, stored,
used, discharged or disposed of in or near the Project unless Landlord has
consented to such storage or use in its sole discretion.
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<PAGE> 42
Any handling, transportation, storage, treatment, disposal or use of any
Hazardous Substances in or about the Project by Tenant, its agents, employees,
contractors or invitees shall strictly comply with all applicable Governmental
Requirements. Tenant shall indemnify, defend and hold Landlord harmless from and
against any liabilities, losses, claims, damages, penalties, fines, attorneys'
fees and court costs, remediation costs, investigation costs and any other
expenses which result from or arise out of the use, storage, treatment,
transportation, release, or disposal of any Hazardous Substances on or about the
Project by Tenant, its agents, employees, contractors or invitees. If any lender
or governmental agency shall require testing for Hazardous Substances in the
Premises, Tenant shall permit reasonable access to conduct such testing;
provided that such testing shall be done in a manner that minimizes any
interference with the conduct of Tenant's business and is done at Landlord's
expense, subject to Tenant's indemnification obligation as provided in the
preceding sentence. Notwithstanding the foregoing, Tenant may use and store in
the Premises such inks, document duplication fluids, janitorial cleaning fluids,
lubricants and other customary office or household supplies (the "Necessary
Hazardous Substances") as are necessary in the normal operation of Tenant's
business in the Premises, if Tenant (i) uses and stores all Necessary Hazardous
Substances in accordance with all applicable Governmental Requirements; (ii)
indemnifies and holds Landlord harmless from any claims, costs or damages
arising from the presence of any Necessary Hazardous Substances in the Building;
and (iii) pays any increased insurance premiums arising from the presence of any
Necessary Hazardous Substances in the Building.
B. "Hazardous Substances" means any hazardous or toxic
substances, materials or waste the presence, use or disposal of which are or
become regulated by any local government authority, the state in which the
Project is located or the United States government, including those substances
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any
other applicable federal, state or local law, and the regulations adopted under
these laws.
30. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
31. RIGHT OF FIRST NEGOTIATION. Provided that Tenant is not then in
default in the performance of any of its obligations under this Lease (beyond
any applicable cure period) and subject to the terms and conditions set forth
herein, Landlord grants to Tenant the following right of first negotiation
("Right of First Negotiation") with respect to any property now owned or
hereafter acquired by Landlord within 250 yards of the Project (the "Expansion
Space"). Subject to the terms and conditions set forth herein, Tenant shall have
the Right of First Negotiation with respect any Expansion Space which may become
available during the Term. When any Expansion Space becomes available, Tenant
shall have thirty (30) days following its receipt of Landlord's notice that such
space is available to respond. Landlord's notice shall include the general terms
on which Landlord proposes to lease the Expansion Space. Tenant's failure to
respond during such period shall be deemed to be Tenant's election to pass on
the available space.
41
<PAGE> 43
In the event Landlord receives written notice from Tenant during such period of
Tenant's interest in the available space, then Landlord and Tenant shall meet
and confer within the thirty (30) day period following Landlord's receipt of
Tenant's notice to agree on the terms and conditions upon which Tenant would
lease the Expansion Space from Landlord. If Landlord and Tenant are able to
agree on the terms on which Landlord would lease any Expansion Space to Tenant,
Landlord and Tenant agree to execute an amendment to this Lease to incorporate
the Expansion Space and those terms agreed to by Landlord and Tenant. In the
event Landlord and Tenant are unable to agree on the terms for any Expansion
Space within the thirty (30) day period following Landlord's receipt of Tenant's
notice regarding Tenant's interest in the available space (or in the event
Tenant passes on such space, or is deemed to have passed on such space),
Landlord shall be free to market such space to any third parties without any
liability to Tenant. Landlord and Tenant agree to negotiate in good faith taking
into consideration the following factors: (i) the rental rates of similar
projects in the geographic area of the Project (including the rent, operating
costs, and all other monetary payments that Landlord could obtain for the
Expansion Space from a third party desiring to lease such space, the services
provided under the terms of the Lease, the obligation, or lack thereof, to pay
tenant improvement costs and leasing commissions in connection with such renewal
and all other monetary payments then being obtained for new leases of space
comparable to such space), and (ii) it should be assumed that the Expansion
Space will be used for the highest and best use allowed under the Lease. The
Right of First Negotiation described herein is personal to Tenant and Tenant's
Affiliates and may not be exercised or assigned, voluntarily or involuntarily,
by or to any person or entity other than Tenant and Tenant's Affiliates, without
Landlord's prior written consent, which Landlord may withhold in its sole and
absolute discretion.
32. EXTENSION OPTION. Subject to Subsection B below, Tenant may at
its option extend the Term of this Lease as to Buildings B and C for three (3)
successive periods of five (5) years each. Provided that Tenant has exercised
the prior and concurrent extension options then available as to Buildings B and
C, Tenant shall also have the option to extend the Term of this Lease as to
Buildings A and D for two (2) successive periods of five (5) years each, and
(provided that Tenant has previously exercised the prior and concurrent
extension options then available as to Buildings A, B, C, and D) Tenant shall
have an additional option to extend the Term of this Lease as to Buildings A and
D for a period of four (4) years. Each such renewal period is called a "Renewal
Term". Each Renewal Term shall be upon the same terms contained in this Lease,
except that the payment of Base Rent and any Tenant Improvement Allowance during
the Renewal Term shall be determined in the manner set forth below; and any
reference in the Lease to the "Term" of the Lease shall be deemed to include any
Renewal Term and apply thereto, unless it is expressly provided otherwise.
Tenant shall have no additional extension options.
A. The Base Rent during a Renewal Term shall be the greater
of (i) the Base Rent applicable to the last day of the final Lease Year prior to
the applicable Renewal Term, or (ii) the then Market Rate (defined hereinafter)
for such space for a term commencing on the first day of the Renewal Term.
"Market Rate" shall mean the then prevailing market rate for a comparable term
commencing on the first day of the Renewal Term for tenants of comparable size
and creditworthiness for comparable space in other projects of similar quality
in the vicinity of the Project and taking into account the age, condition, size
extent of improvement, Landlord provided services and other aspects of such
comparable projects to the Project which would affect market rental values at
the commencement of the applicable Renewal Term, including the value
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<PAGE> 44
of any leasehold improvements installed in the Premises by Landlord or Tenant.
B. To exercise any option, Tenant must deliver a binding
notice to Landlord not earlier than twelve (12) months nor later than ten (10)
months prior to the expiration of the initial Term of this Lease, or the prior
Renewal Term, as the case may be. The Market Rate for the particular Renewal
Term shall be calculated pursuant to Subsection C below. Such calculations shall
be final and shall not be recalculated at the actual commencement of such
Renewal Term. If Tenant fails to timely give its notice of exercise, Tenant will
be deemed to have waived its option to extend.
C. Market Rate shall be determined as follows:
(i) If Tenant provides Landlord with its binding notice
of exercise pursuant to Subsection B above, then within thirty (30) days of
Landlord's receipt of Tenant's exercise notice (or, at Landlord's election, at
an earlier point), Landlord shall calculate and inform Tenant of the Market
Rate. If Tenant rejects the Market Rate as calculated by Landlord, Tenant shall
inform Landlord of its rejection within fifteen (15) days after Tenant's receipt
of Landlord's calculation, and Landlord and Tenant shall commence negotiations
to agree upon the Market Rate. If Tenant fails to timely reject Landlord's
calculation of the Market Rate it will be deemed to have accepted such
calculation. If Landlord and Tenant are unable to reach agreement within thirty
(30) days after Landlord's receipt of Tenant's notice of rejection, then the
Market Rate shall be determined in accordance with (ii) below.
(ii) If Landlord and Tenant are unable to reach agreement
on the Market Rate within said thirty (30) day period, then within seven (7)
days thereafter, Landlord and Tenant shall each simultaneously submit to the
other in a sealed envelope its good faith estimate of the Market Rate. If the
higher of such estimates is not more than one hundred five percent (105%) of the
lower, then the Market Rate shall be the average of the two. Otherwise, the
dispute shall be resolved by arbitration in accordance with (iii) below.
(iii) Within seven (7) days after the exchange of
estimates, the parties shall select as an arbitrator an independent MAI
appraiser with at least five (5) years of experience in appraising comparable
research and development/office space within a five (5) mile radius of the
Project (a "Qualified Appraiser"). If the parties cannot agree on a Qualified
Appraiser, then within a second period of seven (7) days, each shall select a
Qualified Appraiser and within ten (10) days thereafter the two appointed
Qualified Appraisers shall select a third Qualified Appraiser and the third
Qualified Appraiser shall be the sole arbitrator. If one party shall fail to
select a Qualified Appraiser within the second seven (7) day period, then the
Qualified Appraiser chosen by the other party shall be the sole arbitrator.
(iv) Within twenty-one (21) days after submission of the
matter to the arbitrator, the arbitrator shall determine the Market Rate by
choosing whichever of the estimates submitted by Landlord and Tenant the
arbitrator judges to be more accurate. The arbitrator shall notify Landlord and
Tenant of its decision, which shall be final and binding. If the arbitrator
believes that expert advice would materially assist him, the arbitrator may
retain one or more qualified persons to provide expert advice. The fees of the
arbitrator and the expenses of the
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<PAGE> 45
arbitration proceeding, including the fees of any expert witnesses retained by
the arbitrator, shall be paid by the party whose estimate is not selected. Each
party shall pay the fees of its respective counsel and the fees of any witness
called by that party.
D. Tenant's option to extend is personal to Tenant and Tenant
Affiliates and may not be exercised or assigned, voluntarily or involuntarily,
by or to any person or entity other than Tenant (or the transferee in a
"Permitted Transfer", as defined in Section 18F), without Landlord's prior
written consent, which Landlord may withhold in its sole and absolute
discretion. Tenant's option to extend this Lease is subject to the conditions
that: (i) on the date that Tenant delivers its binding notice exercising an
option to extend, Tenant is not in default under this Lease after the expiration
of any applicable notice and cure periods, and (ii) except for a "Permitted
Transfer" (as defined in Section 18F), Tenant shall not have assigned the Lease,
or sublet any portion of a particular Building for which an extension is sought
under a sublease which is effective at any time during the final six (6) months
of the initial Term or the First Renewal Term, as applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD
CARRAMERICA REALTY CORPORATION, a Maryland corporation
By:
----------------------------------
Print Name: Philip L. Hawkins
Print Title: Managing Director
Date: 7/6/98
--------------------------------
TENANT:
CLARIFY INC., a Delaware corporation
By:
----------------------------------
Print Name: Jan A. Praisner
Print Title: CFO
Date: 7/2/98
44
<PAGE> 46
EXHIBIT A
DESCRIPTION OF PROJECT AND PREMISES/BUILDINGS
[A diagram of Project and approximate footprint of Buildings is inserted here in
the actual exhibit. Descriptions include total parking of 868 cars, Building A
area of 64,512 S.F., Building B area of 64,512 S.F., Building C area of 64,512
S.F., Building D area of 64,512 S.F. and total building area of 258,048 S.F. ]
<PAGE> 47
EXHIBIT B
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty Corporation, a Maryland corporation
Tenant: Clarify Inc., a Delaware corporation
This Commencement Date Confirmation is made by Landlord and
Tenant pursuant to that certain Lease dated as of _________, 199__ (the
"Lease") for certain premises known as [INSERT BUILDING ADDRESS] (the
"Premises"). This Confirmation is made pursuant to Section 1A of the
Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant
hereby agree that the Commencement Date for the Building or Buildings described
above of the Lease is _____________, 199__, and the Termination Date of the
Lease for such Building or Buildings is _______________, _____.
2. Acceptance of Premises. Tenant has inspected the Premises and
affirms that the Premises is acceptable in all respects in its current "as is"
condition.
3. Incorporation. This Confirmation is incorporated into the Lease,
and forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
TENANT:
CLARIFY INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE> 48
EXHIBIT C
CURRENT CONSTRUCTION SCHEDULE
[A graphical construction schedule is inserted in the actual exhibit. In
addition, the following activity, responsible party and duration in business
days were described:
<TABLE>
<CAPTION>
Activity Responsible Party Duration in Business Days
- -------- ----------------- -------------------------
<S> <C> <C>
Lease execution Landlord and tenant Start
Select TI contractor from list in lease Tenant 5 days form execution
Execute preconstruction agreement with
contractor Landlord 3 days from selection
Cause tenant's architect to complete schematic
design Tenant 20 days from lease execution
Cause contractor to prepare schematic design
cost estimate and submit to tenant Landlord 25 days from lease execution
Approve schematic design cost estimate Tenant 3 days from schematic cost estimate
Approve schematic design Landlord 3 days from schematic desig
Provide names of preferred subcontractors for
mech, plumb., elect. Tenant 5 days from lease execution
Cause landlord's architect to submit completed
construction documents to tenant Landlord 40 days from approval of schem.
cost estimate
Negotiate GMAX with contractor and submit to
tenant for approval, including bids from preferred
subcontractors Landlord 55 days from approval of schem.
cost estimate
Approve GMAX and subcontractors Tenant 5 days from submitted by landlord
Approve construction documents Tenant 5 days from submitted by landlord
Execute GMAX contract and issue notice to
proceed to contractor Landlord 1 day from approval of construction
documents and of GMAX
Secure building permits Landlord 45 days from approval of const.
docs and GMAX
Cause contractor to substantially complete tenant
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C>
Improvements Landlord 60 days from receipt of building
permits
Approve correction list Tenant 5 days from substantial completion
Cause contractor to complete correction list
and project closeout documentation Landlord 10 days from receipt of correction list
</TABLE>
<PAGE> 50
EXHIBIT D
TENANT IMPROVEMENT AGREEMENT
THIS TENANT IMPROVEMENT AGREEMENT ("Agreement") is attached to and made
an integral part of that certain Lease dated June 18, 1998, between CarrAmerica
Realty Corporation, as Landlord, and Clarify Inc., as Tenant (the "Lease"). Any
terms which are capitalized but not defined in this Agreement, shall have the
same definition given such terms in the Lease.
1. INITIAL TENANT IMPROVEMENTS. Landlord shall improve the Premises
in accordance with approved Tenant Improvements Plans, as defined below (such
initial improvements are referred to herein as the "Tenant Improvements").
Landlord shall perform the Tenant Improvements, at Tenant's cost, subject to the
Landlord's contribution of the "Tenant Improvement Allowance" (as hereinafter
defined).
(a) Selection of Contractor (and Identification of Certain
Subcontractors) for Construction of Tenant Improvements. During the time period
set forth in the Construction Schedule, Tenant shall interview and select one of
the following three (3) licensed general contractors: Rudolph & Sletten, South
Bay Development and Construction, and DPR Construction, to construct the Tenant
Improvements (the "Tenant Improvements Contractor"). In the event Rudolph &
Sletten is chosen as the Tenant Improvements Contractor, the Tenant Improvements
Contractor's fee for the construction of the Tenant Improvements shall not
exceed a profit of 2.25%. The management fee for any other entity chosen as the
Tenant Improvements Contractor shall be the amount contained in the Construction
Agreement. Landlord shall not charge any construction management fee in
connection with the construction of the initial Tenant Improvements. During this
same time period, Tenant shall cause Tenant's Architect (as defined below) to
submit to Landlord the names of the three subcontractors for the major trades
(i.e., mechanical, plumbing and electrical) which Tenant wishes to include in
the bid process described in Section 1(g)(ii) below.
(b) Landlord's Execution of Preconstruction Agreement with
Tenant Improvements Contractor. Following Tenant's selection of the Tenant
Improvements Contractor, Landlord shall enter into a preconstruction agreement
("Preconstruction Agreement") with the Tenant Improvements Contractor within the
time period set forth in the Construction Schedule. Under the Preconstruction
Agreement, the Tenant Improvements Contractor shall provide certain
preconstruction services to Landlord and Tenant, such as assisting Landlord,
Tenant and Tenant's Architect (as defined below) in estimating the time and
costs associated with the construction of the Tenant Improvements. All costs
incurred under the Preconstruction Agreement shall be part of the Tenant
Improvements Costs payable out of the Tenant Improvement Allowance; provided in
no event shall the costs incurred thereunder exceed $25,000.
(c) Tenant's Architect's Preparation of Schematic Design
Documents. Tenant shall select and engage its own architect ("Tenant's
Architect") to conduct all of the interviews
<PAGE> 51
and gather all of the other information necessary to develop the "Schematic
Design Documents" to the degree of completeness defined by the American
Institute of Architects (the "AIA"). The Schematic Design Documents shall be
prepared and submitted by Tenant to Landlord within the time period set forth in
the Construction Schedule. Tenant shall copy Landlord's Architect and the Tenant
Improvements Contractor on each draft of such documents and invite Landlord's
Architect (as defined below) and the Tenant Improvements Contractor to those
meeting concerning such documents as Tenant deems appropriate so that (i) the
Tenant Improvements Contractor can provide cost and timing information to to
Tenant during the Schematic Design process, and (ii) Landlord's Architect can
provide input on such plans prior to their submission for Landlord's approval so
that the timing set forth in the Construction Schedule can be maintained.
(d) Landlord's Approval of Schematic Design Documents. Upon
receipt of the Schematic Design Documents, Landlord shall review and approve
such documents (or provide Tenant with written explanation of why such documents
cannot be approved) within the time period set forth in the Construction
Schedule.
(e) Preparation of Schematic Cost Estimate. Following
Landlord's receipt of the Schematic Design Documents, Landlord shall cause the
Tenant Improvements Contractor to prepare and submit to Tenant, within the time
period set forth in the Construction Schedule, a "Schematic Cost Estimate" for
the construction of the Tenant Improvements as contemplated by the approved
Schematic Design Documents.
(f) Tenant's Approval of the Cost Estimate. Following Tenant's
receipt of the Schematic Cost Estimate, Tenant shall review and approve the
Schematic Cost Estimate within the time period set forth in the Construction
Schedule. If Tenant does not approve the Schematic Cost Estimate, it may cause
the Tenant's Architect to revise the Schematic Design Documents to reduce the
cost associated therewith; provided that any delay in the Substantial Completion
of the Tenant Improvements caused by such revisions shall be a "Tenant Delay"
for purposes of Section 5 below. In the event Tenant decides to revise the
Schematic Design Documents, the processes described above shall be repeated
until Tenant approves the Schematic Design Cost for the Schematic Design
Documents approved by Landlord.
(g) Landlord's Architect's Preparation of the Construction
Documents. Following Landlord's approval of the Schematic Design Documents and
Tenant's approval of the Schematic Cost Estimate associated therewith, Landlord
shall cause Ehrlich-Rominger ("Landlord's Architect") to prepare and submit the
"Construction Documents" (as defined by the AIA, based on the approved Schematic
Design Documents) to Tenant within the time period set forth in the Construction
Schedule.
(h) Landlord's Negotiation of Guaranteed Maximum Price
Construction Contract. Following Landlord's approval of the Schematic Design
Documents and Tenant's approval of the Schematic Cost Estimate associated
therewith, Landlord shall negotiate a guaranteed maximum price construction
contract ("Construction Contract", referred to as the "GMAX" in the Construction
Schedule) with the Tenant Improvements Contractor for the
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<PAGE> 52
construction of the Tenant Improvements, which shall include getting bids from
at least 3 subcontractors for each of the major trades (i.e., mechanical,
electrical and plumbing), including those three subcontractors (if any)
identified by Tenant pursuant to Section 1(a) above, and submit the same to
Tenant for its approval within the time period set forth in the Construction
Schedule.
(i) Tenant's Approval of the Construction Documents,
Construction Contract and Subcontractors. Following Tenant's receipt of the
Construction Documents and the proposed Construction Contract (including the
bids from the subcontractors for the three major trades), Tenant shall review
and approve the same within the time period set forth in the Construction
Schedule.
(j) Execution of Construction Contract and Issuance of Notice
to Proceed With Construction of Tenant Improvements. Following the Tenant's
approval of the Construction Documents and the Construction Contract, Landlord
and the Tenant Improvements Contractor shall execute the Construction Contract
and Landlord shall issue a notice to such Contractor to proceed with the
construction of the Tenant Improvements within the time period set forth in the
Construction Schedule.
(k) Securing of Building Permits for Construction of Tenant
Improvements. Following the Tenant's approval of the Construction Documents and
the Construction Contract, Landlord shall cause the Tenant Improvements
Contractor to secure the necessary building permits for the construction of the
Tenant Improvements within the time period set forth in the Construction
Schedule.
(l) Construction of Tenant Improvements. Following the receipt
of the applicable building permits, Landlord shall cause the Tenant Improvements
Contractor to substantially complete the Tenant Improvements within the time
period set forth in the Construction Schedule. The Tenant Improvements shall be
constructed within the Buildings in accordance with the Construction Contract
and Landlord's "Tenant Improvement Guidelines", attached to the Lease as Exhibit
E. All Tenant Improvements shall be constructed in a good and workmanlike
manner, and only good grades of material shall be used. All Tenant Improvements
shall be performed in such a fashion and by such means as necessary to maintain
a professional work environment in the areas surrounding the space to be
improved. During the construction period, Landlord shall (i) invite Tenant to
participate in any regular meetings which Landlord and its representatives may
have concerning the construction of the Tenant Improvements, (ii) permit Tenant
to observe the Tenant Improvements construction work, so long as such persons do
not interfere with the Tenant Improvements Contractor's performance of the
Tenant Improvements work, and (iii) periodically inform Tenant as to the status
of the Tenant Improvements work.
All selections, preparations, submissions and approvals required above, shall be
made within the time periods specified in the Construction Schedule, attached to
the Lease as Exhibit C, and failure to do so shall be deemed to be a "delay"
caused by the party which failed to timely select, prepare, submit or approve
(as the case may be) for purposes of Section 5 below. Neither party
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shall unreasonably withhold its approval of any documents submitted for its
approval. The Construction Schedule for the construction of the Tenant
Improvements is attached hereto as Exhibit C. Unless a change to the
Construction Schedule is agreed to in writing by both parties, the Construction
Schedule shall continue to apply throughout the construction of the Tenant
Improvements. The Construction Schedule assumes that work occurs only on
"business days". For purposes of the Construction Schedule, the term "business
days" shall mean every Monday through Friday, except: 1/2 day on New Year's Eve,
New Year's Day, Memorial Day, Independence Day, Labor Day, the day before
Thanksgiving Day, Thanksgiving Day, 1/2 day on Christmas Eve and Christmas Day.
2. CHANGE ORDERS. If Tenant shall require changes to the approved
Construction Documents or the Construction Contract ("Change Orders"), Tenant
shall deliver to Landlord for its approval, which approval shall not be
unreasonably withheld or delayed, a detailed description of the proposed change,
including any plans and specifications for such Change Orders, if applicable
(collectively, the "Change Order Plans"). Landlord shall within five (5)
business days after receipt of Tenant's Change Order Plans, either provide
comments to such Change Order Plans or approve the same. If Landlord provides
Tenant with comments to the initial draft of the Change Order Plans, and
provided Tenant still desires to pursue such Change Order, Tenant shall provide
revised Change Order Plans to Landlord incorporating Landlord's comments.
Landlord shall then either provide comments to such revised Change Order Plans
or approve such Change Order Plans. The process described in the previous
sentence shall be repeated, if necessary, until the Change Order Plans have been
finally approved by Landlord. After the Change Order Plans have been approved by
Landlord and Tenant in writing, they shall be submitted to the Contractor for
its review. The Contractor shall promptly upon receipt notify Landlord and
Tenant of the estimated increase or reduction in cost and/or construction time
which would likely result if such Change Order request is implemented. Following
Tenant's receipt of such information from Contractor, Tenant shall have two (2)
business days to withdraw such Change Order request. If Tenant fails to withdraw
such Change Order request within such time, then the final Construction
Documents and Construction Contract shall be amended accordingly to include such
Change Order Plans. Tenant shall immediately pay Landlord for any increase in
the amounts due under the Construction Contract as a result of such Change
Order. In addition, Tenant shall pay for all preparations and revisions of the
Change Order Plans (including Landlord's costs in reviewing the same) and the
construction of all Change Orders. Any delays in the Substantial Completion of
the Tenant Improvements caused by Tenant's Change Orders (whether or not they
are implemented) shall constitute a "Tenant Delay" for purposes of Section 5 of
this Tenant Improvement Agreement and the Lease.
3. LANDLORD'S CONTRIBUTION. Landlord shall apply the Tenant
Improvement Allowances described in Sections 3C(1), (2) and (3) of the Lease
(collectively, the "Tenant Improvement Allowance") toward the costs incurred by
Landlord for the Tenant Improvements, including, without limitation, the costs
incurred by Landlord in connection with the preparation of the Schematic Design
Documents, Schematic Cost Estimate, Construction Documents, Construction
Contract and related documents, including any amendments thereto, and obtaining
of necessary building permits and approvals. If the estimated cost of the Tenant
Improvements
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exceeds the Tenant Improvement Allowance (the difference being referred to
herein as the "Excess Tenant Improvements Costs"), Tenant shall be responsible
for such excess; provided that Tenant shall pay to Landlord a proportionate
share of such Excess Tenant Improvements Costs each time a progress payment is
due under the Construction Contract. Tenant shall pay the proportionate share of
each such progress payment due under the Construction Contract which bears the
same relationship to the total amount of the progress payment in question as the
amount of the total Excess Tenant Improvements Cost bears to the total Tenant
Improvements Costs. Tenant shall pay such portion of the Excess Tenant
Improvements Costs within five (5) business days of receipt of Landlord's
invoice for the same. Any portion of the Tenant Improvement Allowance which has
not been used by Landlord (or, if applicable, has not been requested in writing
by Tenant) on or before the end of the sixth (6th) month period following the
Building A Commencement Date (as defined in the Lease) shall be forfeited, and
Landlord shall have no obligation to disburse any remaining amount of the Tenant
Improvement Allowance for written requests received after such date.
Landlord and Tenant agree and acknowledge (i) that the City of San Jose imposes
certain taxes as a condition to issuing 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"), (ii) that the rate for
these two taxes is higher for a structure designed or intended to be used for
"industrial purposes", (iii) if an additional BSC Tax is due upon the issuance
of a building permit for the Tenant Improvements because the City of San Jose
determines that the Tenant Improvements are intended for "industrial purposes",
that such additional taxes shall be paid out of the Tenant Improvement
Allowance, and (iv) if a BSC Tax and a CRM Tax based on the value of the Tenant
Improvements, plus an additional BSC Tax and a CRM Tax based on the value of the
shell, is due upon the issuance of a building permit for the Tenant Improvements
because the City of San Jose determines that the Building is intended for
"commercial purposes", that such taxes shall be paid out of the Tenant
Improvement Allowance.
The Tenant Improvements costs shall not include (i) costs to repair any design
or construction error or defect, or (ii) overtime charges unless incurred at
Tenant's written request. Tenant shall have the right with at least 24 hours
prior written notice to Landlord to inspect and copy during normal business
hours at a location to be specified by Landlord, all of Landlord's books and
records, and other supporting documentation which pertain to the construction of
the Tenant Improvements. Upon the Substantial Completion of the Tenant
Improvements, Landlord shall deliver to Tenant a final and detailed accounting
of all Tenant Improvements costs paid or incurred by Landlord and Tenant shall
pay to Landlord any portion of the Tenant Improvements costs paid or incurred by
Landlord which are in excess of the sum of (a) Landlord's Contribution and (b)
partial Excess Tenant Improvements Costs payments made by Tenant to Landlord in
connection with each progress payment due under the Construction Contract.
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4. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. In the event
Tenant elects to exercise its early access right under Section 1B(2) of the
Lease, Tenant shall do so on the terms and conditions set forth below:
(a) any such permission shall constitute a license only,
conditioned upon Tenant's:
(i) working in harmony with Landlord and Landlord's
Contractor and other workmen, mechanics and suppliers which are constructing the
Tenant Improvements and Tenant shall avoid actions which interfere with or delay
the construction of the Tenant Improvements, and Tenant's failure to do so shall
constitute a "Tenant Delay" for purposes of this Tenant Improvement Agreement
and the Lease;
(ii) obtaining in advance Landlord's approval (which
shall not be unreasonably withheld) of the contractors proposed to be used by
Tenant and depositing with Landlord in advance of any work such contractor's
affidavit for the proposed work and as necessary, from time to time, waivers of
lien from such contractor and all subcontractors and suppliers of material; and
(iii) furnishing Landlord with the insurance required of
Tenant and its contractors pursuant to Section 9 of the Lease, and causing all
other parties entering the Project to perform work therein to provide Landlord
with the same types, and amounts, of coverages required of Tenant and its
contractors in Section 9 of the Lease.
(b) Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property or installations in
the Premises prior to the Commencement Date. Tenant shall protect, defend,
indemnify and save harmless Landlord from all liabilities, costs, damages, fees
and expenses arising out of the activities of Tenant or its agents, contractors,
suppliers or workmen in the Premises.
5. COMMENCEMENT DATE DELAY. The Commencement Date shall be delayed
until the Substantial Completion of the Tenant Improvements (as defined in the
Lease), except to the extent that the delay shall be caused by any one or more
of the following (a "Tenant Delay"):
(a) Tenant's request for Change Orders whether or not any such
Change Orders are actually implemented or performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
(d) Tenant's delay in reviewing, revising or approving the
Tenant Improvements Plans beyond the periods set forth herein (or in the
Construction Schedule); or
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(e) Tenant's delay in performing any of its obligations under
the Lease or this Agreement (including, without limitation, the failure to
provide information critical to the normal progression of the construction of
the Tenant Improvements). Tenant shall perform such obligations and/or provide
such information as soon as reasonably possible, but in no event later than the
time period set forth herein or in the Construction Schedule (or if none is
stated, then in no event longer than five (5) business days after such
performance is required, or if applicable after the receipt of such request for
information from the Landlord); or
(f) Tenant's delay in making payments to Landlord for Excess
Tenant Improvements Costs; or
(g) Any other act or omission by Tenant, its agents,
contractors or persons employed by any of such persons which causes a delay in
the normal progression of the Tenant Improvements work, and Landlord agrees to
provide written notice to Tenant of such acts so, if possible, Tenant can take
corrective action to avoid further Tenant Delays as a result of such acts; or
(h) Any other "Tenant Delay" described elsewhere in this
Agreement or the Lease.
If the Commencement Date is delayed beyond the date set forth in the
Construction Schedule due to a Tenant Delay, then Landlord shall cause
Landlord's Architect to certify the date on which the Tenant Improvements would
have been completed but for such Tenant Delay, or were in fact completed without
any Tenant Delay, then such date shall constitute the Commencement Date for all
purposes hereunder and Landlord and Tenant shall execute the Commencement Date
Confirmation, attached hereto as Exhibit B, confirming such date.
Notwithstanding the foregoing, Landlord agrees that it shall not cause the
Architect to adjust the Commencement Date as provided in the prior paragraph if
the Commencement Date is delayed by less than thirty (30) calendar days (which
shall be deemed the equivalent of twenty-one (21) business days for purposes of
the Construction Schedule) as a result such Tenant Delay.
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EXHIBIT E
TENANT IMPROVEMENT GUIDELINES
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CLARIFY RESEARCH CENTRE
TENANT IMPROVEMENTS DESIGN SPECIFICATIONS
CARRAMERICA
<TABLE>
<CAPTION>
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Building Element Comments
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a. Application To be effective, these Tenant Improvement Design Specifications should be
reviewed with the Tenant and incorporated into the Lease.
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b. Review and approval Tenant Improvements drawings shall be reviewed at the end of TI Schematic Design,
and also when Final TI Construction Documents are completed. Written comments are
to be provided by the Tenant at each stage. Tenant comments shall be incorporated
into the TI designs prior to the commencement of TI construction. An approved
set of TI Construction Documents will be retained by CarrAmerica and the Tenant.
Approval of TI designs will not be unreasonably withheld by either CarrAmerica or
the Tenant. Where "design-build" specifications are used, CarrAmerica shall
review and approve all design build plans and specifications provided by the
design-build contractor prior to construction.
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c. Inspection and Acceptance TI specifications shall include a requirement that the Tenant and TI Contractor
cooperate with CarrAmerica in the review and acceptance of the TI as follows:
1. TI construction will be reviewed by a CarrAmerica and Tenant representative at
intervals appropriate to the course of the work and the size of the TI project,
preferably in the company of the TI designer.
2. When TI work is substantially complete, a CarrAmerica and Tenant
representative will accompany the TI designer on a walk-through of the work to
ensure the completion of the TI work in accordance with the approved designs.
3. CarrAmerica and Tenant will receive a copy of a Certificate of Substantial
Completion provided by the TI designer, with correction list items noted.
4. CarrAmerica and Tenant representatives will follow up on the completion of
correction list items.
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d. Project Record Drawings, warranties and TI Plans and specifications will include a requirement that the TI Contractor
instructions maintain a set of record drawings showing all changes made to the design during
the course of construction. A copy of the TI Project Record Drawings will be
delivered to CarrAmerica and to Tenant when TI work is completed. Copies of
warranties and instructions for all HVAC equipment shall be delivered to
CarrAmerica and Tenant.
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e. Code compliance Construction must comply with all codes, ordinances and regulations applying to
the TI design and construction. CarrAmerica will provide a copy of the
Certificate of Occupancy and/or inspection sign-offs to the Tenant.
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f. Modifications to building shell and exterior Changes to the building elevations and any exterior tenant improvements
(equipment pads, enclosures, etc.) are subject to CarrAmerica's express written
approval. Tenants are responsible for obtaining all required public works,
building and planning approvals for such changes, copies of which shall be
provided to CarrAmerica.
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g. Materials and specifications Materials or products listed by name in these guidelines are intended to
establish a general standard of quality and durability and are not intended to
restrict design expression or esthetics.
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<TABLE>
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Building Element Comments
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a. General Core Area improvements by Tenants should comprehensively integrate stairs,
elevators and elevator equipment rooms, lobbies, restrooms, shafts and other
core elements to maximize the overall efficiency of the buildings for current and
future uses, to provide maximum flexibility for future TI reconfigurations, and
to support the overall economic value of the building. Shafts, stairs and other
core elements should be consolidated as much as possible.
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b. Efficiency Targets TI core designs should achieve a rentable-to-gross-area ratio of 96% and, where
applicable, a multi-tenant floor factor of 112%.
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c. Electrical closets Locate near exterior door. Minimize bus duct run to transformer. Provide
sufficient space for capacity expansion for manufacturing, labs, clean rooms, and
other common high-technology uses.
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d. Restrooms Core area restroom configurations should prevent direct sightline access from
lobbies, but should be readily accessible and easy to find. The following
specifications apply to the design of restrooms.
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1. Partitions Wall/floor mounted heavy-duty metal toilet partitions with honeycomb core and
factory baked enamel finish.
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2. Fixtures Wall-mounted wc's will heavy duty flushometer valves. Reinforced saddles and
heavy-duty flushometer valves for wall-mounted urinals.
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3. Sinks and counters Bottom-set sinks in corian or equivalent countertops, provide 4" backsplash
where counters meet walls.
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4. Faucets One sink nearest towel dispenser to provide "paddle" handicapped accessible
faucet handles.
Other sinks to have spring-loaded automatic-closing hot and cold water faucets.
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5. Accessories Fully recessed Bobrick stainless restroom accessories or equal.
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6. Hose bibb and floor drain Provide a floor drain and hose bib with security handle at each restroom mounted
at 18" AFP.
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7. Janitors closet Provide a janitor's closet integrated with the plan of each pair of restrooms to
include:
Mop sink with hot and cold water.
Sealed concrete floor.
Ceramic tile wainscot surrounding mopsink; all other walls 5/8" greenboard
with two coats of mildew-resistant semi-gloss paint over one coat of primer.
Built-in storage.
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8. Finishes and construction See Section 3 for additional specifications on restroom wall, floor and ceiling
construction and finishes.
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<TABLE>
<CAPTION> BUILDING ELEMENT COMMENTS
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e. Corridors Corridors should provide for efficient traffic flow and long-term flexibility,
and should conform to the following specifications:
1. Walls, ceilings, flooring, and lighting as noted under general improvements
specifications in Section 3.
2. Provide cleaning outlets at maximum 20' o.c.
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f. Drinking fountains and coolers Locate close to lobby in a semi-recessed alcove; provide handicapped accessible
units where required by code.
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g. Elevators and elevator machine rooms
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1. Number and type Provide a minimum of one pre-engineered hydraulic elevator per two-story building.
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2. Elevator lobby Minimum lobby clearance in front of elevator shall be 10 ft; 12 ft preferred.
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3. Elevator pit Elevator pit should be treated with ironite or similar water-resistant barrier.
Provide a pit access ladder.
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4. Cab Cab finishes should be very durable and easy to clean.
Cab should be equipped with a security phone and all code-mandated handicapped
access devices.
Provide at least one elevator with minimum 4'-0" door width and 8'-0" ceiling
height with heavy-duty back and side rails and pad books for furniture and
freight.
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5. Elevator shaft and equipment rooms Elevator shafts and equipment rooms shall be enclosed
with full height walls, two layers of 5/8" GWB mounted on acoustical clips each
side with fiberglass batt sound insulation in all walls, sealed acoustically at
wall tops and bottoms.
The elevator equipment room should be located on ground floor for ease of
maintenance access.
Elevator equipment room doors shall have sound seals. Provide containment curb or
tray around hydraulic pump assembly to control fluid leaks.
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h. Telephone equipment rooms Provide ample ventilation, and space for additional backboards and equipment
cabinets for a full range of telecommunications support services; locate
telephone equipment rooms near communications conduct building entry points, and
near exterior of building shell to simplify
installation of future additional ventilation/cooling.
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i. Loading, materials handling, and high 2 x 6 bump rails, 4'-0" high 5/8" fire-treated plywood wainscot, and 12 ga. comer
traffic areas. guards to 48" AFF on all outside corners in loading and materials handling areas.
Heavy duty full-welded door frames (no knock-down frames), heavy duty hinges, and
24" high kick plates on all doors in loading, materials handling and high traffic
areas.
Door frames shall be secured to 16 ga. jamb studs which are continuous from floor
to floor.
See Section III for wall, floor and ceiling construction and finishes.
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<TABLE>
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BUILDING ELEMENT COMMENTS
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a. Flooring and base, general Carpet is the preferred floor finish in offices and corridors.
Other finishes will be considered.
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1. Lobby floors Lobby floors: Daltile glazed pavers 8" x 8" or
equal or better. Upgraded stone products, if selected, should be
selected for durability and ease of maintenance as well as
appearance. Wood floors in lobbies are discouraged.
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2. Restroom floors and base Thinset, dryset ceramic tile floor and 4" base throughout
restrooms: 2" square Daltile, price Code 3 or equal or better,
all installed with moisture barrier or Laticrete, and installed
to meet Ceramic Tile Institute specifications.
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3. Carpet and base Minimum 32 oz. looped pile direct glue down.
Base Armstrong or Barke.
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4. Sheet Vinyl Armstrong Classic Corlon, or equal or better.
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5. Vinyl composition tile Vinyl Composition Tile (VCT) where installed: Armstrong Premium
Excelon or equal or better.
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6. Exposed concrete floors Any exposed concrete floors shall receive a scaler.
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7. Transition strips Provide hardwood or stone transition strips between tile and
adjacent flooring materials.
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b. Wall construction and finishes, general. General: All walls to be constructed from 5/8" GWB over 3 5/8" 25
GA metal studs at 10" oc. Metal studs shall extend to structure
above as necessary to prevent lateral deformation of wall. Walls
shall not depend on ceiling grid for stiffness. All GWB shall be
finished to USG standards or better.
Except where noted below, walls shall be skip-trowelled and
textured with minimum one prime and two finish coats of eggshell
latex paint.
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1. Lobby walls Lobbies: consider upgrading lobby wall finishes to tile, stone, or
other superior and durable material.
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2. Restroom walls Restrooms: All wet areas shall receive full-height 4" square semi-
gloss finish Daltile, Price Group 3 or equal or better. Other
restrooms walls shall receive vinyl wallcovering or two coats of
mildew-resistant latex paint over one coat of primer.
All restrooms walls shall receive 5/8" greenboard in lieu of
standard GWB.
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3. Loading, materials handling, and high traffic 5/8" GWB on 16ga metal studs at 16" oc; walls shall extend to
area walls. structure above. Loading areas may be fire taped only. See
additional requirements under Section 2.i.
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4. Exposed columns All exposed columns shall be cleaned, primed, and receive two
coats of semi-gloss enamel.
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c. Ceilings, general: Ceiling shall be 2"-0" x 2' x 0" suspension system by Armstrong
with 24" x 24" x 5/8" "Cortega" tegular edge or equal or better in
Lobbies, Boardrooms, and Other important public spaces; 24" by
48" by 5/8" flat accoustical lay-in tile in other spaces except
where noted below. Monolititic ceiling grids in all office and lab
areas are required.
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1. Lobby ceilings Lobby ceilings: 24" x 24" tegular tile as noted above or 5/8" GWB
on 20 ga. metal studs at 12" o.c. at minimum 12 ft AFF. Provide one
prime and two finish coats flat latex. Design expression in lobby
ceilings is encouraged.
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2. Restroom ceilings Restroom ceilings: 5/8" GWB on 20 ga. metal studs at 12" o.c. at
minimum 9"-0" AFF w/two coats mildew-resistant semi-gloss latex
over one coat primer.
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3. Loading and service areas Loading and service areas: space may be open to structure above
if desired.
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4. Open ceilings in offices Where ceilings in offices are left open to structure for design
reasons, entire underside of structure shall be cleaned and painted
with two coats of semi-gloss latex over one coat primer.
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<TABLE>
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BUILDING ELEMENT COMMENTS
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<S> <C>
d. Lighting, general: 2' x 4' three-tube high-efficiency fluorescent fixtures with electronic ballasts
and 18-cell parabolic lenses, except where noted below; use compact fluorescent
downlights where accent lighting is desired.
1. Lobby and general circulation lighting Maximize use of compact fluorescent downlights where light fixtures are visible.
Consider use of indirect lighting and architectural feature lighting to enhance
appearance of lobbies, conference areas, Boardrooms, and general circulation
areas.
2. Restroom lighting Above counters and sinks: 12" x 4'12" x 8' two-tube fluorescence with eggcrate
grilles or equal or better. Provide recessed compact fluorescent downlights
elsewhere in restrooms.
3. Loading, materials handling, and high- Chain-hung industrial fixtures where open ceilings are permitted, otherwise apply
traffic areas general specification.
e. Window coverings Exterior windows to receive 1" horizontal mini-blinds by Levolor or equal, color
to be coordinated with building TI design and with building shell colors.
Interior windows, where desired, to receive 1" horizontal mini-blinds by Levolor
or equal, color coordinated with the design of interior Tenant Improvements.
f. Interior cabinets and millwork All interior cabinets, countertops and other millwork shall be finished with
plastic laminate, or equal or better. Where upgraded millwork in wood, stone or
other materials is desired, materials and finishes shall conform to the highest
industry standards.
g. Doors, frames and hardware
1. Doors 3'-0" x 9'0" x 1-3/4" solid core wood with stain or paint grade wood veneer
finish.
2. Frames Anodized or baked enamel frames with mitered and welded corners (no knockdown
frames).
3. Locksets and latchsets Heavy duty commercial Schlage "D" series or equal latchsets and locksets with
Schlage "Sparta" satin chromium lever style handles, or equal or better. Doors in
lobby areas, major conference rooms and other public areas shall have Heavy Duty
mortise type Schlage "L" series latchsets and locksets with satin chromium
Schlage "03" or "17" style lever handles, or equal or better.
4. Hinges Heavy duty ball-bearing hinges to match hardware.
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<TABLE>
<CAPTION>
BUILDING ELEMENT COMMENTS
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<S> <C>
a. General Description Tenant shall design and install a complete variable air volume (VAV) heating,
ventilating and air conditioning (HVAC) systems in accordance with the following
design specifications for all office, core area and general use areas. Where
tenant requires specialized HVAC designs to support specialized manufacturing,
labs or other uses, tenant shall provide design criteria and performance
specifications for the systems with the schematic design submittal.
b. General specifications standards All TI designs and installations shall conform to the latest applicable editions
of the following standards:
AMCA - Air Movement and Control Association
ANSI - American National Standards Institute
ARI - American Refrigeration Institute
ASTM - American Society for Testing and Materials
ASHRAE - American Society of Heating, Refrigeration and Air Conditioning
Engineers
ASME - American Society of Mechanical Engineers
AABC - Associated Air Balance Council
SMACNA - Sheet Metal and Air Conditioning Contractors National Association
All applicable Plumbing, Mechanical, Electrical and Building Codes
c. Review, approval, inspection, acceptance,
and record drawings. In additional to those submittals and procedures identified in Section 1.b., c.,
and d. above, the Tenant and CareAmerica shall receive:
1. One complete set of detailed operating and maintenance instructions and spare
parts lists
2. Domestic water chlorinating certificates
3. One complete set of warranties and guarantees
4. Final air balance report
d. HVAC Design Capacities The systems shall be designed to provide for a minimum of 350 gsf/ton of capacity
300 gsf/ton is preferred Higher capacities may be applicable to specialized
applications where identified by the Tenant.
e. Materials and Equipment Furnish and install McQuay RoofPak Singlezone Heating and Cooling Units Model RDT
or equal or better, specifically designed for rooftop applications.
1. Cabinet insulation Each unit cabinet shall be fully insulated with min. 1", 3/4 lb. neoprene coated
glass fiber.
2. Cabinet finishes Factory baked enamel
3. Access doors 17 ga. galv. steel with staggered engagement latches.
4. Frame and base 8 ga. and 13 ga. (900B) galvanized steel. Formed recess in base shall seat on
gasketed roof curb.
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BUILDING ELEMENT COMMENTS
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5. Return Air Plenum Unit shall include a 100% return air plenum allowing air to enter from the bottom or back
of the unit.
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6. Outside air hood Units shall include a 100% outside air hood and draw-through filter section.
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7. Dampers Units shall include McQuay UltraSeal low-leak dampers with two position actuator, including
outside air economizer damper with 0 - 100% capacity, of modulating spring return type with
adjustable comparative enthalpy control.
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8. Draw-through filter section Unit shall include an integrated filter rack and 12" American Air Filter Varicel Stud 900,
Class I filters.
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9. Fan Assemblies All fans shall be statically, dynamically balanced at the factory, and include 200,000 hr.
greasable ball bearings, and shall be mounted on rubber-in-shear or spring isolators with
seismic restraints.
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10. Fan Motors All fan motors shall be heavy duty 1800 rpm with adjustable belt tension and 150% service
factor.
- ------------------------------------------------------------------------------------------------------------------------------------
11. Variable Frequency Drives Variable Frequency Drive Inverters with bypass contractors shall be provided for supply and
return fans.
- ------------------------------------------------------------------------------------------------------------------------------------
12. Cooling coils .0060" copper tubes w/HI-F rippled and corrugated fins, interlaced two-circuit, multi-row
design, five rows, 12 fins/inch; include stainless steel positively sloped drip pan with
drain connector extending through unit base.
- ------------------------------------------------------------------------------------------------------------------------------------
13. Smoke detectors Ionization type in supply and return air openings.
- ------------------------------------------------------------------------------------------------------------------------------------
14. Condensing section Heavy duty Copeland Discus reciprocating semi-hermetic compressors on resilient isolators.
Multi-row 1/8" o.d. high-efficiency inlaid copper condenser coils.
Heavy duty direct-drive condenser fan/motor assemblies with stainless steel blades and three-
phase non-reversing motors; each refrigeration circuit shall include sight glass, filter
drier, and 15 degree liquid subcooling circuit.
- ------------------------------------------------------------------------------------------------------------------------------------
15. Refrigeration control Two refrigeration circuits per unit, including liquid line solenoid valve, oil pressure
switch, high pressure switch, low pressure switch, compressor control circuit switch, and
pumpdown switch.
A McQuay Speedtrol fan speed control shall provide for refrigeration circuit operation at
ambient temperatures down to 20 degrees.
- ------------------------------------------------------------------------------------------------------------------------------------
16. Microprocessor Control System Each unit shall have a complete McQuay Mitrotech 800/802c Microprocessor Control System or
equal, including temperature and pressure sensors, input/output board, main processor board,
displays, keyboards, and staging boards as required, all factory mounted and tested,
including the following features:
1. A stand alone DDC controller
2. LED complete system status board
3. Optically isolated input/output design
4. Surge protection
5. RS 232 port PC connection
6. Built-in programmable time schedule with non-volatile memory
7. Time schedule readable from Network Master Panel or Remote Monitoring Panel
8. Space sensors for constant volume or VAV applications
9. Input/Output functions and user interactions equal to or better than McQuay Microtech
software
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 of 9
<PAGE> 65
CLARIFY RESEARCH CENTRE
TENANT IMPROVEMENTS DESIGN SPECIFICATIONS
CARRAMERICA
<TABLE>
<CAPTION>
BUILDING ELEMENT COMMENTS
---------------- --------
<S> <C>
17. Gas heater section Stainless steel primary combustion chamber, headers, primary and secondary tubes.
Modulating forced draft natural gas burners with pre-purge timing, flame
supervision, combustion air proving switch, and spark ignition. Gas train shall
include redundant shutoff valves, pressure regulator, shutoff cock, pilot gas
valve, pilot pressure regulator, and pilot shutoff cock.
18. Other required features 48" blank access sections at draw-through and blow-through locations.
Fused disconnect switch for each unit.
Service lights at supply and return sections with switch and 20A 110v outlet.
Phase failure protection.
Ground fault protection.
f. Roof curbs Insulated pre-manufactured one-piece 12ga stainless steel custom-built roof
curbs. Curbs shall:
1. Provide for complete perimeter support of the unit.
2. Be custom made for the roof slope, and shall provide level installation of
the unit without shims or other means of leveling the unit.
3. Include integral crickets and curb-top drips.
4. Include gaskets for weatherproof joint between curb and unit.
5. Provide for minimum of 12" separation between unit frame and roof.
g. Air distribution
1. Sound attenuators Provide sound attenuators to IAC recommendations.
2. Ducts, general Spiral wound or oval galvanized sheet metal ducts to meet SMACNA standards
using companion-flanged joints with gaskets. Weld all medium pressure fittings.
Where necessary use rectangular sheet metal ducts with following SMACNA gauge/
pressure recommendations.
3. Splitter dampers Not permitted.
4. Flex duct and connections: Ducts upstream of VAV units shall be hard-piped; downstream of VAV units shall
be acoustical alumaflex 6'-0" maximum length.
5. Fire and smoke dampers 100% free area, UL listed with clearly marked door access to fusible links.
6. Ductwork joint tape "Hardcast"
7. Insulated duct All ducts located in non-conditioned spaces shall be insulated and shall be
wrapped with a vapor barrier.
8. Diffusers, registers and grilles Neck velocities maximum 600 fpm.
Outlet duct to terminals sized to 500 cfm maximum.
Supply diffusers in ceilings shall be perforated face with adjustable cores.
Return grilles shall be hex code face.
Locate dampers well away from diffusers to minimize noise.
Linear and other architectural diffusers shall be used in lobby ceilings and
other public spaces.
</TABLE>
Page 8 of 9
<PAGE> 66
CLARIFY RESEARCH CENTRE
TENANT IMPROVEMENTS DESIGN SPECIFICATIONS
CARRAMERICA
<TABLE>
<CAPTION> BUILDING ELEMENT COMMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
a. Codes and Regulations Comply with the National Plumbing Code, and all applicable local codes and
regulations.
- ------------------------------------------------------------------------------------------------------------------------------------
b. Piping Use black iron or copper pipe where applicable. PVC or ABS pipe is not permitted,
even if allowed by code.
- ------------------------------------------------------------------------------------------------------------------------------------
c. Labs and hazardous materials areas In labs or other facilities where hazardous materials are used, provide
CarrAmerica with copies of approved OSHA and EPA disposal procedures. Use of
sanitary waste lines for disposal is not permitted.
- ------------------------------------------------------------------------------------------------------------------------------------
d. Plumbing hardware All restroom and other core area plumbing hardware shall be Kohler or equal or
better. All toilets and urinals shall have automatic shut-off valves.
- ------------------------------------------------------------------------------------------------------------------------------------
e. Plumbing fixtures All restroom and other core area plumbing fixtures shall be as follows:
Water closet: American Standard Afwall Wall Mounted Toilet #2477.016 (or equal or
better)
Urinal: American Standard Wall Allbrook Wall Mounted Urinal #6541.132 (or equal
or better)
Lavatory: American Standard Ovalyn Under Counter Lavatory #0470.039 (or equal or
better)
- ------------------------------------------------------------------------------------------------------------------------------------
f. Cleanouts Provide cleanouts at a maximum of 30'-0" o.c. in all waste lines.
- ------------------------------------------------------------------------------------------------------------------------------------
g. Pipe compound Use Teflon pipe dope only. Lead solder is not permitted.
- ------------------------------------------------------------------------------------------------------------------------------------
a. Codes and regulations Comply with latest edition of the National Electric Code, and all other applicable
codes and regulations.
- ------------------------------------------------------------------------------------------------------------------------------------
b. Conductors, conduit, fittings All conductors shall be copper. No aluminum conductors are permitted, even if
allowed by code.
All conductors shall be in rigid steel conduit or Electrical Metallic Tubing
(EMT) where permitted by code.
All boxes and fittings shall be galvanized steel. No plastic boxes or fittings
are permitted, even if allowed by code.
- ------------------------------------------------------------------------------------------------------------------------------------
c. Light fixture ballasts All fluorescent light fixtures shall have electronic T-8 ballasts. No ballasts
containing PCB's are permitted.
- ------------------------------------------------------------------------------------------------------------------------------------
a. Codes and regulations All fire sprinkler installations shall comply with NFPA13, with Factory Mutual
(FM) requirements, and with all other applicable local codes and regulations.
- ------------------------------------------------------------------------------------------------------------------------------------
b. Drawings and calculations Prior to installation of fire sprinklers, CarrAmerica and Tenant will receive a
complete set of sprinkler shop drawings, including calculations. CarrAmerica's
FM representative will review the fire sprinkler design.
Do no proceed with installation without FM approval.
- ------------------------------------------------------------------------------------------------------------------------------------
c. Sprinkler heads Lobbies: Concealed heads with cover plates painted to match ceiling.
Offices: Flush chrome heads, or semi-recessed with two-piece escutcheons to match
ceiling.
Open ceilings where permitted: Exposed heads.
- ------------------------------------------------------------------------------------------------------------------------------------
d. Fire alarm systems Tenant-installed fire alarm systems shall have automatic dialers to call in to a
central station monitor.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 9 of 9
<PAGE> 67
EXHIBIT F
Landlord's Signage Standards
Carrramerica Signage Standards
[The graphical signage standards for the following sign type were included in
the actual exhibit:
Exterior (Permanent) Page #
Entrance Identification 1
Primary Directional 2
Secondary Directional 3
Primary Tenant Identification 4
Building Address 5
Miscellaneous 6
Exterior (Temporary)
Site/Leasing Sign 7
Typefaces 8]
<PAGE> 68
EXHIBIT G
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed
near the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory, if any, shall be used by Landlord to
display names and locations of tenants in the Project. During any period in
which the Project is a multi-tenant Project, no tenant shall use or make any
changes to such directories without Landlord's prior written consent.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises, unless Tenant is the
sole occupant of the Building. Tenant shall lend its full cooperation to keep
such areas free from all obstruction and in a clean and sightly condition and
shall move all supplies, furniture and equipment as soon as received directly to
the Premises and move all such items and waste being taken from the Premises
(other than waste customarily removed by employees of the Building) directly to
the shipping platform at or about the time arranged for removal therefrom.
Neither Tenant nor any employee or invitee of Tenant shall go upon the roof of
the Project, except to perform its obligations under the Lease.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. After the completion of the initial Tenant Improvements, Tenant
shall not install or operate any refrigerating, heating or air conditioning
apparatus, or carry on any mechanical business without the prior written consent
of Landlord; use the Premises for housing, lodging or sleeping purposes. Tenant
shall not occupy or use the Premises or permit the Premises to be occupied or
used for any purpose, act or thing which is in violation of any Governmental
Requirement or which may be dangerous to persons or property.
6. Tenant shall not use any method of heating or air conditioning
other than that supplied by Landlord, except that small personal portable
heaters and/or fans shall be permitted.
7. Without the prior written consent of Landlord, which Landlord
shall not unreasonably withhold, Tenant shall not use the name of the Project or
any picture of the Project in connection with, or in promoting or advertising
the business of, Tenant, except Tenant may use (i) a picture of the Project in
connection with Tenant's annual reports or other informational brochures, and
(ii) the address of the Project as the address of its business.
8. Tenant assumes full responsibility for protecting the Premises
from theft, robbery and pilferage, which may arise from a cause other than
Landlord's negligence, which includes keeping doors locked and other means of
entry to the Premises closed and secured.
9. During any period in which the Project is a multi-tenant Project,
no bicycle (except in those areas which may be designated for bicycles by
Landlord) or other vehicle and no animals or pets shall be
<PAGE> 69
allowed in the Premises, halls, freight docks, or any other parts of the
Building except that blind persons may be accompanied by "seeing eye" dogs.
Unless Tenant is the sole occupant of the Building, Tenant shall not make or
permit any noise, vibration or odor to emanate from the Premises, or do anything
therein tending to create, or maintain, a nuisance, or do any act tending to
injure the reputation of the Building.
10. Tenant shall not do or permit the manufacture or sale of any
fermented, intoxicating or alcoholic beverages without obtaining written consent
of Landlord, except for the occasional sales in connection with entertainment or
social functions (e.g., a cash bar at a company holiday party).
11. Tenant shall not disturb the quiet enjoyment of any other tenant,
if any, in the Building and/or Project.
12. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted outside the windows of the
Premises without the prior written consent of Landlord, and then only at the
expense and risk of Tenant, and they shall be of such shape, color, material,
quality, design and make as may be approved by Landlord.
13. Tenant shall not during the term of this Lease canvas or solicit
other tenants of the Building for any purpose.
14. During any period in which the Project is a multi-tenant Project,
Tenant shall not install or operate any phonograph, musical or sound-producing
instrument or device, radio receiver or transmitter, TV receiver or transmitter,
or similar device, without in each instance the prior written approval of
Landlord. The use thereof, if permitted, shall be subject to control by Landlord
to the end that others shall not be disturbed.
15. Tenant shall promptly remove all rubbish and waste from the
Premises.
16. During any period in which the Project is a multi-tenant Project,
Tenant shall not conduct any auctions or exhibit, sell or offer for sale, rent
or exchange in the Premises or at the Project any article, thing or service,
except those ordinarily embraced within the Permitted Uses of the Premises
specified in the Schedule of this Lease, without the prior written consent of
Landlord.
17. Tenant shall not overload any floors in the Premises or any
public corridors or elevators in the Building.
18. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's reasonable discretion, and Landlord's
satisfaction shall be determined in its reasonable judgment.
3
<PAGE> 70
EXHIBIT H
MORTGAGES CURRENTLY AFFECTING THE PROJECT
[None]
<PAGE> 1
EXHBIT 10.13
Grant No. 1658
CLARIFY INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Clarify Inc. (the
"Corporation"):
Optionee: Jan A. Praisner
Grant Date: April 13, 1998
Vesting Commencement Date: April 13, 1998
Exercise Price: $13.0625 per share
Number of Option Shares: 225,000 shares
Expiration Date: April 12, 2008
Type of Option: Non-Statutory Stock Option
Exercise Schedule: The Option shall become exercisable with
respect to (i) twenty-five percent (25%) of the Option Shares
upon Optionee's completion of one (1) year of Service measured
from the Vesting Commencement Date and (ii) the balance of the
Option Shares in successive equal monthly installments upon
Optionee's completion of each of the next thirty-six (36) months
of Service measured from and after the first anniversary of the
Vesting Commencement Date. In the event of a Corporate
Transaction, the provisions of Paragraph 6 shall govern the
exercisability of the option. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.
Optionee hereby acknowledges receipt of a copy of the Option
Summary and Prospectus in the form attached hereto as Exhibit B.
No Employment or Service Contract. Nothing in this Notice or in
the attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
<PAGE> 2
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
____________, 1998
Date
CLARIFY INC.
By:
--------------------------------------
Title:
-----------------------------------
-----------------------------------------
OPTIONEE
Address:
-----------------------------------------
ATTACHMENTS
Exhibit A - Stock Option Agreement
2
<PAGE> 3
EXHIBIT A
<PAGE> 4
CLARIFY INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of the Corporation's grant of an option to
Optionee.
B. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the
Grant Date, an option to purchase up to the number of Option Shares specified in
the Grant Notice. The Option Shares shall be purchasable from time to time
during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years measured
from the Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. However, this option may be assigned in whole or in
part during Optionee's lifetime in accordance with the terms of a Qualified
Domestic Relations Order. The assigned portion shall be exercisable only by the
person or persons who acquire a proprietary interest in the option pursuant to
such Qualified Domestic Relations Order. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. This option shall become exercisable for the Option
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
<PAGE> 5
(i) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while this
option is outstanding, then Optionee shall have a period of three (3)
months (commencing with the date of such cessation of Service) during
which to exercise this option, but in no event shall this option be
exercisable at any time after the Expiration Date.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option. Such right shall lapse and this
option shall cease to be outstanding upon the earlier of (A) the
expiration of the twelve (12)- month period measured from the date of
Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have
a period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option. In no
event shall this option be exercisable at any time after the
Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain
outstanding.
(v) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the
number of vested Option Shares for which the option is exercisable at
the time of Optionee's cessation of Service. Upon the expiration of
such limited exercise period or (if earlier) upon the Expiration Date,
this option shall terminate and cease to be outstanding for any vested
Option Shares for which the option has not been exercised. To the
extent Optionee is not vested in the Option Shares at the time of
Optionee's cessation of Service, this option shall immediately
terminate and cease to be outstanding with respect to those shares.
(vi) In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall
supersede any provisions to the contrary in this paragraph.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option shall become
exercisable for an additional number of shares as if Optionee had been in
Service an additional twelve (12) months at the time of the Corporate
Transaction or, if greater, for 50% of the then
2
<PAGE> 6
unexercisable Option Shares. In addition, the exercisability of this option, to
the extent outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for any or all
of the Option Shares at the time subject to this option as fully-vested shares
of Common Stock. No such full acceleration of this option pursuant to the
preceding sentence, however, shall occur if and to the extent: (i) this option
is, in connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof) or (ii) this option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
Option Shares for which this option is not exercisable at the time of the
Corporate Transaction (the excess of the Fair Market Value of such Option Shares
over the aggregate Exercise Price payable for such shares) and provides for
subsequent pay-out in accordance with the same exercise schedule in effect for
the option pursuant to the option exercise schedule set forth in the Grant
Notice. The determination of option comparability under clause (i) shall be made
by the Compensation Committee of the Board, and such determination shall be
final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option, to
the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) Upon an Involuntary Termination of Optionee's Service within
eighteen (18) months following a Corporate Transaction in which this option is
assumed or replaced, the exercisability of this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become fully
exercisable for all the Option Shares at the time subject to this option as
fully-vested shares of Common Stock and may be exercised for any or all of those
shares at any time prior to the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
3
<PAGE> 7
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:
(i) Execute and deliver to the Corporation a Notice of Exercise
for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares in
one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but only
to the extent authorized by the Compensation Committee of the
Board in accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (I) to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such
exercise and (II) to the
4
<PAGE> 8
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its
5
<PAGE> 9
principal corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
below Optionee's signature line on the Grant Notice. All notices shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, postage
prepaid and properly addressed to the party to be notified.
13. FINANCING. The Compensation Committee of the Board may, in its
absolute discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a promissory
note. The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Compensation Committee of the Board in its sole discretion.
14. GOVERNING LAW. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
6
<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Clarify Inc. (the "Corporation") that I elect to purchase
_________ shares of the Corporation's Common Stock (the "Purchased Shares") at
the option exercise price of $_________ per share (the "Exercise Price")
pursuant to that certain option (the "Option") granted to me on April 13, 1998.
Concurrently with the delivery of this Exercise Notice to the Corporation,
I shall hereby pay to the Corporation the Exercise Price for the Purchased
Shares in accordance with the provisions of my agreement with the Corporation
(or other documents) evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price.
,199__
- ---------------------
Date
<TABLE>
<S> <C>
-----------------------------------------
Optionee
Address:
--------------------------------
-----------------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
-----------------------------------------
Address to which certificate
is to be sent, if different
from address above:
-----------------------------------------
-----------------------------------------
Social Security Number:
-----------------------------------------
Employee Number:
-----------------------------------------
</TABLE>
<PAGE> 11
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean Clarify Inc., a Delaware corporation.
G. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
<PAGE> 12
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Board to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B)
a reduction in Optionee's level of compensation (including base salary,
fringe benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a relocation
of Optionee's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without Optionee's consent.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential
A-2
<PAGE> 13
information or trade secrets of the Corporation (or any Parent or Subsidiary),
or any other intentional misconduct by Optionee adversely affecting the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of all the
acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
W. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Board shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE> 1
EXHIBIT 10.14
Grant No. 001830
CLARIFY INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Clarify Inc. (the
"Corporation"):
Optionee: Kirsten Berg-Painter
Grant Date: July 6, 1998
Vesting Commencement Date: July 6, 1998
Exercise Price: $11.6875 per share
Number of Option Shares: 220,000 shares
Expiration Date: July 5, 2008
Type of Option: Non-Statutory Stock Option
Exercise Schedule: Except as provided below, the Option shall
become exercisable with respect to (i) twenty-five percent (25%)
of the Option Shares upon Optionee's completion of one (1) year
of Service measured from the Vesting Commencement Date and (ii)
the balance of the Option Shares in successive equal monthly
installments upon Optionee's completion of each of the next
thirty-six (36) months of Service measured from and after the
first anniversary of the Vesting Commencement Date.
Should the Company terminate Optionee's Service six months or
less following the Vesting Commencement Date, then the Option
shall be exercisable for 12.5% of the Option Shares. Should the
Company terminate Optionee's Service six months or more but less
than 12 months following the Vesting Commencement Date, then the
Option shall be exercisable for 2.083% of the Option Shares for
each month of Service completed from the Vesting Commencement
Date. In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the exercisability of the option. In no
event shall the Option become exercisable for any additional
Option Shares after Optionee's cessation of Service.
Optionee hereby acknowledges receipt of a copy of the Option
Summary and Prospectus in the form attached hereto as Exhibit B.
No Employment or Service Contract. Nothing in this Notice or in
the attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the
<PAGE> 2
Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
____________, 1998
Date
CLARIFY INC.
By:
--------------------------------------
Title:
-----------------------------------
-----------------------------------------
OPTIONEE
Address:
-----------------------------------------
ATTACHMENTS
Exhibit A - Stock Option Agreement
2
<PAGE> 3
EXHIBIT A
<PAGE> 4
CLARIFY INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of the Corporation's grant of an option to
Optionee.
B. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may be assigned in
whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to the
assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing
<PAGE> 5
with the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall cease
to be outstanding upon the earlier of (A) the expiration of the twelve
(12)- month period measured from the date of Optionee's death or (B) the
Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this
option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
(v) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. To the extent Optionee is not
vested in the Option Shares at the time of Optionee's cessation of Service,
this option shall immediately terminate and cease to be outstanding with
respect to those shares.
(vi) In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall supersede
any provisions to the contrary in this paragraph.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option shall
become exercisable for an additional number of shares as if Optionee had been in
Service an additional twelve (12) months at the time of the Corporate
Transaction or, if greater, for 50% of the then unexercisable Option Shares. In
addition, the exercisability of this option, to the extent outstanding at such
time but not otherwise fully exercisable, shall automatically accelerate so that
this option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for any or all of the Option Shares at the time
subject to this option as fully-vested shares of Common Stock. No such full
acceleration of this option pursuant to the
2
<PAGE> 6
preceding sentence, however, shall occur if and to the extent: (i) this option
is, in connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof) or (ii) this option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
Option Shares for which this option is not exercisable at the time of the
Corporate Transaction (the excess of the Fair Market Value of such Option Shares
over the aggregate Exercise Price payable for such shares) and provides for
subsequent pay-out in accordance with the same exercise schedule in effect for
the option pursuant to the option exercise schedule set forth in the Grant
Notice. The determination of option comparability under clause (i) shall be made
by the Compensation Committee of the Board, and such determination shall be
final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this
option, to the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) Upon an Involuntary Termination of Optionee's Service within
eighteen (18) months following a Corporate Transaction in which this option is
assumed or replaced, the exercisability of this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become fully
exercisable for all the Option Shares at the time subject to this option as
fully-vested shares of Common Stock and may be exercised for any or all of those
shares at any time prior to the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
3
<PAGE> 7
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Compensation Committee of the
Board in accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
4
<PAGE> 8
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state and local income and employment tax withholding
requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Compensation Committee of the Board may, in its
absolute discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a promissory
note. The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Compensation Committee of the Board in its sole discretion.
5
<PAGE> 9
14. GOVERNING LAW. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
6
<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Clarify Inc. (the "Corporation") that I elect to purchase
_________ shares of the Corporation's Common Stock (the "Purchased Shares") at
the option exercise price of $_________ per share (the "Exercise Price")
pursuant to that certain option (the "Option") granted to me on July 6, 1998.
Concurrently with the delivery of this Exercise Notice to the Corporation,
I shall hereby pay to the Corporation the Exercise Price for the Purchased
Shares in accordance with the provisions of my agreement with the Corporation
(or other documents) evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price.
_____________________, 199__
Date
------------------------------------
Optionee
Address:
----------------------------
------------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
------------------------------------
Address to which certificate
is to be sent, if different
from address above:
------------------------------------
------------------------------------
Social Security Number:
------------------------------------
Employee Number:
------------------------------------
E-1
<PAGE> 11
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. CORPORATION shall mean Clarify Inc., a Delaware corporation.
G. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
A-1
<PAGE> 12
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as the price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Board to be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B) a
reduction in Optionee's level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of Optionee's
place of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent
A-2
<PAGE> 13
or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
W. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Board shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE> 1
EXHIBIT 10.15
Grant No. 1856
CLARIFY INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Clarify Inc. (the
"Corporation"):
Optionee: Jeanne Urich
Grant Date: July 15, 1998
Vesting Commencement Date: July 15, 1998
Exercise Price: $14.3750 per share
Number of Option Shares: 170,000 shares
Expiration Date: July 14, 2008
Type of Option: Non-Statutory Stock Option
Exercise Schedule: Except as provided below, the Option shall
become exercisable with respect to (i) twenty-five percent (25%)
of the Option Shares upon Optionee's completion of one (1) year
of Service measured from the Vesting Commencement Date and (ii)
the balance of the Option Shares in successive equal monthly
installments upon Optionee's completion of each of the next
thirty-six (36) months of Service measured from and after the
first anniversary of the Vesting Commencement Date.
Should the Company terminate Optionee's Service six months or
less following the Vesting Commencement Date, then the Option
shall be exercisable for 12.5% of the Option Shares. Should the
Company terminate Optionee's Service six months or more but less
than 12 months following the Vesting Commencement Date, then the
Option shall be exercisable for 2.083% of the Option Shares for
each month of Service completed from the Vesting Commencement
Date. In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the exercisability of the option. In no
event shall the Option become exercisable for any additional
Option Shares after Optionee's cessation of Service.
Optionee hereby acknowledges receipt of a copy of the Option
Summary and Prospectus in the form attached hereto as Exhibit B.
No Employment or Service Contract. Nothing in this Notice or in
the attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the
<PAGE> 2
Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
____________, 1998
Date
CLARIFY INC.
By:
--------------------------------------
Title:
-----------------------------------
-----------------------------------------
OPTIONEE
Address:
-----------------------------------------
-----------------------------------------
2
<PAGE> 3
EXHIBIT A
<PAGE> 4
CLARIFY INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of the Corporation's grant of an option to
Optionee.
B. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may be assigned in
whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to the
assigned portion shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Board may deem appropriate.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing
<PAGE> 5
with the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall cease
to be outstanding upon the earlier of (A) the expiration of the twelve
(12)- month period measured from the date of Optionee's death or (B) the
Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this
option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
(v) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. To the extent Optionee is not
vested in the Option Shares at the time of Optionee's cessation of Service,
this option shall immediately terminate and cease to be outstanding with
respect to those shares.
(vi) In the event of a Corporate Transaction, the provisions of
Paragraph 6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall supersede
any provisions to the contrary in this paragraph.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option shall
become exercisable for an additional number of shares as if Optionee had been in
Service an additional twelve (12) months at the time of the Corporate
Transaction or, if greater, for 50% of the then unexercisable Option Shares. In
addition, the exercisability of this option, to the extent outstanding at such
time but not otherwise fully exercisable, shall automatically accelerate so that
this option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for any or all of the Option Shares at the time
subject to this option as fully-vested shares of Common Stock. No such full
acceleration of this option pursuant to the
2
<PAGE> 6
preceding sentence, however, shall occur if and to the extent: (i) this option
is, in connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof) or (ii) this option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
Option Shares for which this option is not exercisable at the time of the
Corporate Transaction (the excess of the Fair Market Value of such Option Shares
over the aggregate Exercise Price payable for such shares) and provides for
subsequent pay-out in accordance with the same exercise schedule in effect for
the option pursuant to the option exercise schedule set forth in the Grant
Notice. The determination of option comparability under clause (i) shall be made
by the Compensation Committee of the Board, and such determination shall be
final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this
option, to the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) Upon an Involuntary Termination of Optionee's Service within
eighteen (18) months following a Corporate Transaction in which this option is
assumed or replaced, the exercisability of this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become fully
exercisable for all the Option Shares at the time subject to this option as
fully-vested shares of Common Stock and may be exercised for any or all of those
shares at any time prior to the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
3
<PAGE> 7
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Compensation Committee of the
Board in accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
4
<PAGE> 8
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state and local income and employment tax withholding
requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Compensation Committee of the Board may, in its
absolute discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a promissory
note. The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Compensation Committee of the Board in its sole discretion.
5
<PAGE> 9
14. GOVERNING LAW. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
6
<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Clarify Inc. (the "Corporation") that I elect to purchase
_________ shares of the Corporation's Common Stock (the "Purchased Shares") at
the option exercise price of $_________ per share (the "Exercise Price")
pursuant to that certain option (the "Option") granted to me on July 15, 1998.
Concurrently with the delivery of this Exercise Notice to the Corporation,
I shall hereby pay to the Corporation the Exercise Price for the Purchased
Shares in accordance with the provisions of my agreement with the Corporation
(or other documents) evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price.
_____________________, 199__
Date
------------------------------------
Optionee
Address:
----------------------------
------------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
------------------------------------
Address to which certificate
is to be sent, if different
from address above:
------------------------------------
------------------------------------
Social Security Number:
------------------------------------
Employee Number:
------------------------------------
E-1
<PAGE> 11
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. CORPORATION shall mean Clarify Inc., a Delaware corporation.
G. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
A-1
<PAGE> 12
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as the price is reported by the
National Association of Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Board to be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B) a
reduction in Optionee's level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of Optionee's
place of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent
A-2
<PAGE> 13
or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
W. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Board shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 38,259
<SECURITIES> 2,407
<RECEIVABLES> 36,765
<ALLOWANCES> 1,980
<INVENTORY> 0
<CURRENT-ASSETS> 85,806
<PP&E> 19,745
<DEPRECIATION> 10,836
<TOTAL-ASSETS> 103,526
<CURRENT-LIABILITIES> 40,148
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 54,080
<TOTAL-LIABILITY-AND-EQUITY> 103,526
<SALES> 58,236
<TOTAL-REVENUES> 89,182
<CGS> 1,592
<TOTAL-COSTS> 19,984
<OTHER-EXPENSES> 64,188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,046
<INCOME-TAX> 2,237
<INCOME-CONTINUING> 3,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,809
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
