SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-26994
ADVENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2901952
(State of incorporation) (IRS Employer Identification Number)
301 Brannan Street, San Francisco, California 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Acts: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of the registrant's Common Stock outstanding as of March
17, 1999 was 8,295,388. The aggregate market value of the registrant's Common
Stock held by non-affiliates, based upon the closing price on March 17, 1999, as
reported on the Nasdaq National Market System, was approximately $227.7 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts II and
III of this Form 10-K: (1) 1998 Annual Report to Stockholders of the Registrant
(Part II of this Form 10-K); and (2) Definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders to be held May 4, 1999 (Part III of
this Form 10-K).
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PART I
ITEM 1. BUSINESS
OVERVIEW
Advent Software, Inc. (Advent) is a leading provider of stand-alone and
client/server software products, data interfaces and related services that
automate and integrate certain mission-critical functions of investment
management organizations. Advent Office(TM), an Enterprise Investment Management
(EIM) solution, is an integrated suite of products designed to automate the
entire investment management process. The Advent Office suite contains Axys(R),
a portfolio accounting and management system, Moxy(R), a trading and order
management system, Qube(R), a client relationship management system, Rex(TM), an
automated reconciliation system, Advent Warehouse(TM), an investment data
warehouse solution, Advent Partner(TM), an investment partnership accounting
system, Advent Browser Reporting(TM), an Internet-based solution to access
Advent Office information, and Open G/L, a component that allows users to
integrate portfolio management data with their general ledger systems. Advent
also provides Geneva(R), a real-time accounting and portfolio management
solution for global financial institutions, and Gifts for Windows(TM), a grants
management solution for the grant-giving community. These products address the
need to facilitate the management of increasingly large and complex information
and data flows both within investment management organizations and between such
organizations and third parties, such as brokerage firms, clients, custodians,
banks, pricing services and other data providers. Our products are designed to
reduce client costs, improve the accuracy of client information, and generally
enable clients to devote more time to improving the service they provide to
their customers rather than focusing on operational details. Our strategy is to
develop long-term client relationships and to maintain a high level of lifetime
client satisfaction which we believe will result in additional recurring
revenues from new product licenses, renewals of existing maintenance contracts
and the introduction and adoption of new data products.
Our clients include many of the world's leading investment management
organizations. These organizations vary significantly in size, assets under
management and the complexity of their investment environments. At present, we
have licensed our products to over 5,400 institutions in 36 countries for use by
more than 30,000 concurrent users.
We were incorporated in 1983 in California and reincorporated in the State
of Delaware in November 1995.
INDUSTRY BACKGROUND
The investment management business includes a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, corporations, public funds, foundations,
universities and non-profit organizations manage investment portfolios and
perform similar portfolio management functions. Recently, the investment
management industry has experienced significant growth which, in combination
with other factors, has led to increasing demand for software products that
automate, simplify and integrate functions within investment management
organizations. This increasing demand is driven by several industry dynamics.
Financial assets under management have increased substantially during the last
decade. As the value of total financial assets under management has increased,
there has been a substantial increase in the number of investment management
organizations and a steady introduction of increasingly sophisticated financial
instruments. As a result, investment managers are faced with increasingly
complicated portfolio accounting and management requirements. Investment
management organizations are subject to extensive and evolving industry
standards and government regulations. These dynamics have increased the volume
and complexity of information and data flows within investment management
organizations and between such organizations and third parties, such as
brokerage firms, clients, custodians, banks, pricing services and other data
providers. Consequently, investment management organizations require more
sophisticated and integrated software products for their front, middle and back
offices. (Front office includes the marketing and customer relationship
management aspect of dealing with customers; middle office focuses on trade
order management and trading workflow; and the back office includes the
accounting functions of the organization.) In order to operate efficiently
within this environment, investment management organizations must automate and
integrate their mission-critical and labor-intensive functions, including (i)
investment decision support and client relationship management, (ii) order
management and trading and (iii) portfolio accounting, performance measurement,
report generation and compliance. Investment management organizations
historically have relied on internally developed systems, timesharing services
or simple spreadsheet-based systems to manage information flows. Due to inherent
limitations in each of these types of systems, investment management
organizations are demanding highly functional,
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easy-to-use, scalable, cost-effective and flexible software applications that
automate and integrate their mission-critical business functions.
SOFTWARE PRODUCTS
We offer an integrated suite of software products for automating and
integrating work and data flows across the investment management organization,
as well as the information flows between the investment management organization
and external parties. Our products are intended to reduce client costs, improve
the accuracy of client information and generally enable clients to improve the
service they provide to their customers rather than focusing on operational
details. Each software component in the Advent Office suite focuses on certain
mission-critical functions of the investment management organization. Each
Advent Office implementation is tailored to meet the needs of a particular
market segment, as determined by size, assets under management and complexity of
the investment environment. In addition, we believe that our Enterprise
Investment Management solution is well suited for the investment management
functions of corporations, public funds, partnerships, foundations, universities
and non-profit organizations.
An Enterprise Investment Management solution is an evolutionary process
which encompasses three phases:
o Investment Process Integration - involves the integration of front-,
mid-, and back-office components with each other as well as with
standard productivity applications such as Microsoft Word(R) and
Excel(R). This integration eliminates ineffective communication
between processes, minimizes processing errors, and enables growth by
reducing bottlenecks within the company.
o Data Collection and Reconciliation - enables the investment firm to
integrate the external data regarding pricing and settlements so that
the firm can quickly and efficiently settle transactions and monitor
performance in an automated fashion.
o Customer Responsiveness - incorporates the capability for more
effective communication with customers related to their needs and
holdings with the firm. This capability also enables decision makers
for the firm to have timely access to information in order to make
more effective decisions on behalf of the clients.
BACK OFFICE
We offer three portfolio accounting and management systems: Axys, Advent
Partner and Geneva, each targeted at a different market segment, to automate the
back office functions.
Axys, our core product, introduced in 1993, is a highly functional portfolio
accounting and management system targeted towards investment management
organizations of all sizes. Axys provides investment professionals with broad
portfolio accounting functionality, timely decision support, sophisticated
performance measurement and flexible reporting. Specifically, clients can
record, account for and report on a variety of investment instruments, including
equities, fixed income, mutual funds and cash. Axys users gain access on demand
to portfolio holdings, asset allocation, realized and unrealized gains and
losses, actual and projected income and other valuable data. Portfolio
performance can be measured for individual portfolios or related groups, and for
any specified time period. Investment professionals can choose from over 200
pre-defined reports with flexible "as-of" reporting, which can be customized as
to formats and fonts. Clients can easily generate fully customized reports with
the assistance of the Axys Report Writer. Clients can also produce
presentation-quality graphics via an integrated link with Microsoft Excel's
charting capability. In addition, Axys offers integrated multicurrency
capabilities which, among other things, allows reports to be restated in any
currency, tracks reclaimable foreign withholding tax, and can identify
components of return attributable to market prices versus currency rate
fluctuations.
Axys also provides integration with a variety of investment tools and data.
These include (i) trade order management via Moxy, (ii) pricing, corporate
actions, analytics and fundamental data via interfaces to data vendors, (iii)
automatic data entry and reconciliation of trades with interfaces to the
Depository Trust Corporation (DTC), brokerage firms and custodians (iv) through
the Internet via our custodial data service and software, and (v) Internet
reporting via the Advent Browser Reporting service, our Internet reporting
service.
Advent Partner, introduced in December 1996, is an investment partnership
allocation solution which integrates with Axys. This product is specifically
designed for hedge funds, venture funds and limited investment partnerships who
face the complex and time-consuming task of consistently and accurately
accounting for and reporting on partnership tax allocation and other activities.
The Windows-based system tracks partner-specific information, handles
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the complexities of allocating realized and unrealized gains for tax purposes,
allocates performance incentive fees, provides on-demand partner and partnership
reporting on an economic or tax allocation basis and streamlines the production
of partnership tax returns (K-1's).
Geneva, introduced to target organizations in 1995 and made commercially
available in October 1997, is a high-end portfolio management system designed to
meet the needs of large, global investment management organizations with
complex, international accounting requirements. Geneva offers feature-rich
global accounting, extensive reporting and sophisticated multicurrency
capabilities. In addition, Geneva's highly flexible design allows users to add
newly created financial instruments and tailor accounting treatments to their
specific needs.
REX, introduced in February 1997, is the Advent Office solution for
reconciliation management. REX is integrated with Axys and is designed for firms
that want to electronically reconcile their Axys information against their
custodial information. REX automates matching and helps users identify
exceptions, correct or add transactions to their portfolios or communicate and
track changes required by their custodian.
Advent Warehouse, introduced in 1998, is a complete data warehouse solution
that allows investment professionals to readily access investment data
regardless of how the data was created or maintained, without impacting the
performance of their high volume transaction-based Advent Office systems.
Relational technology and data warehousing tools provide an open environment for
ad hoc decision support and customized reporting on enterprise wide investment
information. Investment professionals can take advantage of the sea of
information captured during the investment process to improve client service and
gain competitive advantage.
Advent Browser Reporting for Investors, introduced in 1998, allows investment
managers to post Axys reports to a secure website where individual clients can
access these reports 24 hours a day, 7 days a week. Advent Browser Reporting for
Enterprise Users allows investment professionals the ability to access Axys from
remote locations via the Internet and run Axys reports as if they were in their
office.
MIDDLE OFFICE
Moxy, introduced in 1995, automates and streamlines the trading and order
management process. Moxy can be integrated with any portfolio accounting system,
facilitates accurate trade order management and preparation, tracks trade order
status, automates the allocation of block trades across multiple portfolios and
electronically interfaces with Axys to provide an integrated solution. Moxy
supports fixed income, mutual funds and equity trading and offers multicurrency
capabilities. Moxy enables investment managers to accurately adjust portfolio
holdings, rebalance portfolios against models, interactively assess "what-if"
scenarios and automatically create orders to be executed. For traders, Moxy
tracks cash and positions during the trading day, enables the accurate
preparation of block trades and internal electronic trade tickets, facilitates
compliance with investment restrictions and trading requirements and minimizes
trading errors. Moxy also allows traders and others to view the status of orders
via customizable screens and maintain an electronic audit trail of the trade
process. Moxy automates the allocation process of partial and complete
executions and allows the user to send allocation results by fax directly from
the computer to brokers and banks. Moxy allows clients using OASYS, an
electronic allocation system, to communicate allocations to brokers
electronically. Moxy also provides Internet-ready electronic order routing based
on the industry standard FIX messaging protocol so that Moxy users can route
trades electronically to any FIX-compliant broker or crossing network that
supports the Internet or other TCP/IP connections. In the future, Moxy will have
additional electronic links that instantly communicate trade and allocation
information to brokers and custodians. Moxy electronically posts allocated
trades into Axys on demand, eliminating time-consuming and error-prone manual
entry.
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FRONT OFFICE
Qube, introduced in 1995, is designed to help securities professionals
develop and improve client relationships by automating scheduling, client
communications and client data. For example, Qube enables investment
professionals to interactively screen client investment profiles and notes of
conversations to identify appropriate candidates for various investment
opportunities. In addition, Qube can be used to enhance direct marketing
campaigns by matching clients with market opportunities. Qube captures extensive
investment profile information, has on-line query capability, networking
features and mail merge capabilities and facilitates information sharing across
professionals in an office. Moreover, Qube is designed to be integrated with
Axys, allowing users to provide accurate and timely portfolio information to
clients.
Advent Browser Reporting for Decision Makers puts the power of data analysis
on the portfolio managers desktop via the Internet. Using On-line Analytical
Processing (OLAP) tools, investment data can be sliced and diced to improve the
decision making process.
GRANTS MANAGEMENT
Advent's wholly-owned subsidiary, MicroEdge, acquired in February 1998,
provides grants management systems. Gifts for Windows is a proposal tracking and
grants management system that allows the user to retrieve and classify requests,
generate personalized letters, manage contracts, schedule and monitor activities
and maintain complete organization history track payments, contingencies and
reports due. This software product is primarily used by the philanthropic
community such as foundations, corporations and other organizations to manage
their grant-making activities.
MAINTENANCE SUPPORT AND DATA INTERFACES
Advent earns recurring revenues by offering a choice of maintenance
contracts and by providing proprietary interfaces to external sources of
critical data. These interfaces allow clients to (i) download pricing, corporate
actions and other data from third party vendors such as Interactive Data, a
wholly owned indirect subsidiary of Pearson plc (Interactive Data), and (ii)
interface with DTC, certain brokerage firms and custodians for trading activity.
Advent continually analyzes the ongoing external data needs of its clients and
expects to offer new data products in the future. Many of Advent's clients use
Advent's proprietary interface to electronically retrieve pricing and other data
from Interactive Data. Interactive Data pays Advent a commission based on
Interactive Data's revenues from providing such data to Advent's clients.
In November 1998, Advent acquired HubData, which consolidates securities
information and data from various third party providers such as Muller Data,
J.J. Kenny, Interactive Data and others, and provides services to a range of
financial institutions via electronic interfaces to many portfolio software
systems.
Due to the mission-critical nature of Advent's products, many clients
purchase annual maintenance contracts which entitle them to technical support
and product upgrades as they become available. Advent continually upgrades and
enhances its products to respond to changing market needs, evolving regulatory
requirements and new technologies.
INTERNET INITIATIVE
Advent believes that the Internet can be a low-cost communications platform
to integrate external information into Advent products, thereby providing Advent
clients with straight through processing of business information. To take
advantage of the Internet, Advent has launched an Internet Initiative whereby it
is developing services, both announced and unannounced, to bring Internet-based
products and services to clients. The first of these services, Custodial Data
Service, was launched during the second quarter of 1997. Using the Internet,
Advent's Custodial Data Service consolidates communication and information from
all participating custodians, enabling Advent clients to quickly and easily
reconcile transactions and holdings with a click of the mouse. The second is
Advent Browser Reporting, introduced in 1998. Advent Browser Reporting is a
reporting component of Advent Office, which provides users the ability to access
Advent Office information through a web browser.
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From time to time, as Advent begins development of new products and
services, including its Internet Initiative, it plans to continue to enter into
development agreements with information providers, clients, or other companies
in order to accelerate the delivery of new products and services.
PROFESSIONAL SERVICES
Professional services consist of consulting, implementation management,
integration management, custom programming, and training. To ensure a successful
product implementation, consultants assist clients with the initial installation
of a system, assist in the conversion of the client's historical data and
provide ongoing training and education. Consulting services may be required for
as little as two days for small systems or up to many weeks for large
implementations. Advent believes that its consulting services facilitate a
client's early success with its products, strengthen the relationship with the
client and generate valuable feedback for Advent.
Implementation management provides a single point-of-contact who will work
closely with our client's project team to plan the implementation, optimize the
use of Advent products, coordinate Advent resources, advocate on their behalf,
and minimize schedule delays and project risks. Additionally, an Implementation
Manager will document the implementation from planning through production.
Integration management provides services in implementations with more
complex needs. Integration Managers work with the clients during implementation
to integrate their systems and workflows with Advent products. The services
include: development of custom interfaces from back-office systems to Advent's
Axys and Moxy products, configuration and management of large volumes of data,
and strategies for deployment of Advent products for distributed sites.
Advent provides its clients with custom programming services that enable
clients to tailor end-user reports to their own specifications. Advent also
provides training sessions to its clients at various sites across the country.
CLIENTS
Advent's clients vary significantly in size and assets under management and
include investment advisors, brokerage firms, banks, hedge funds, corporations,
public funds, universities and non-profit organizations. At present, Advent has
licensed its products to over 5,400 institutions in 36 countries for use by more
than 30,000 concurrent users.
SALES AND MARKETING
Sales
Advent sells its products and services through a direct sales organization
comprised of field sales and telesales representatives. Advent's field sales
force is organized by geographic region and is primarily responsible for selling
Advent Office to mid-sized and large investment management organizations. Advent
has sales offices in San Francisco, CA, New York, NY and Cambridge, MA. Advent's
telesales organization is primarily focused on selling Advent's products to
existing Axys clients and small and mid-sized investment management
organizations. Advent's telesales representatives are located in San Francisco,
New York, Cambridge, MA and Melbourne, Australia. Advent's sales force is
supported by extensive ongoing product and sales training.
Marketing
The marketing department is responsible for assessing market opportunities,
product planning and management and specific sales support. In addition to its
traditional marketing functions, the marketing organization is actively involved
in a process called "Market ValidationSM," using a system of interaction with
and input from potential and existing clients, product development, sales and
client services and support departments to define the scope, features and
functionality of new products and product upgrades. In addition, product
managers are responsible for all phases of a product life cycle from product
development through product introduction and beyond. The marketing department is
also responsible for corporate marketing, including generating client leads,
targeted direct mail campaigns, seminars, advertising, trade shows and
conferences and public relations efforts and also provides the sales force with
appropriate written and electronic materials to use during the sales process.
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PRODUCT DEVELOPMENT
In recent years, Advent has substantially increased its product development
expenditures in order to accelerate the rate of new product introductions,
incorporate new technologies and sustain the quality of its products. In 1998,
1997, and 1996, Advent's product development expenditures were approximately
$12.6 million, $9.4 million, and $6.7 million, respectively. In addition to
engineering, quality assurance and documentation, Advent's product development
activities include the identification and validation of product specifications.
Advent's new products and product upgrades require varying degrees of
development time, depending upon the complexity of the accounting requirements
and securities regulations which they are intended to address, as well as the
number and type of features incorporated. Advent has primarily relied upon the
internal development of its products. Advent has in the past acquired, and may
again in the future acquire, additional technologies or products from third
parties or consultants. Advent intends to continue to support industry standard
operating environments, client/server architectures and network protocols.
There can be no assurance that Advent will be successful in developing,
introducing and marketing new products or product enhancements on a timely and
cost effective basis, if at all, or that its new products and product
enhancements will adequately meet the requirements of the marketplace or achieve
market acceptance. Delays in the commencement of commercial shipments of new
products or enhancements may result in client dissatisfaction and delay or loss
of product revenues. If Advent 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 client requirements,
or if new products or new versions of existing products do not achieve market
acceptance, Advent's business, operating results and financial condition would
be materially adversely affected. In addition, Advent's ability to develop new
products and product enhancements is dependent upon the products of other
software vendors, including certain system software vendors, such as Microsoft
Corporation, database vendors and development tool vendors. In the event that
the products of such vendors have design defects or flaws, or if such products
are unexpectedly delayed in their introduction, Advent's business, operating
results and financial condition could be materially adversely affected. Software
products as complex as those offered by Advent may contain undetected defects or
errors when first introduced or as new versions are released. Although Advent
has not experienced material adverse effects resulting from any software errors,
there can be no assurance that, despite testing by Advent and its clients,
defects or errors will not be found in new products after commencement of
commercial shipments, resulting in loss of or delay in market acceptance, which
could have a material adverse effect upon Advent's business, operating results
and financial condition.
COMPETITION
The market for investment management software is segmented by the relative
size of the organizations that manage investment portfolios. In addition, the
market in each segment is intensely competitive and highly fragmented, subject
to rapid change and highly sensitive to new product introductions and marketing
efforts by industry participants. Advent's competitors include providers of
software and related services as well as providers of timeshare services.
Competitors vary in size, scope of services offered and platforms supported. In
addition, Advent competes indirectly with existing and potential clients, many
of whom develop their own software for their particular needs and therefore may
be reluctant to license software products offered by independent vendors such as
Advent. With respect to the market for its portfolio accounting products, Advent
currently competes primarily with Shaw Data, a division of SunGard Data Systems,
Inc., Thomson Financial, a division of The Thomson Corporation, and with a
number of other smaller companies. Advent believes that the principal
competitive factors affecting its market include product performance and
functionality, ease of use, scalability, ability to integrate external data
sources, product and company reputation, client service and support and price.
There can be no assurance that Advent will be able to compete successfully
against current and future competitors or that competitive pressures will not
result in price reductions, reduced operating margins and the loss of market
share, any one of which could materially adversely affect Advent's business,
operating results and financial condition.
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INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Advent's success is dependent in part on its ability to protect its
proprietary technology. Advent relies on a combination of copyright and
trademark laws, trade secrets, software security measures, confidentiality
agreements and license agreements to establish and protect its proprietary
rights and its software. Despite these efforts, it may be possible for
unauthorized third parties to copy certain portions of Advent's products or to
reverse engineer or otherwise obtain and use proprietary information of Advent.
Advent does not have any patents, and existing copyright laws afford only
limited protection. In addition, Advent cannot be certain that others will not
develop substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with Advent's products,
thereby substantially reducing the value of Advent's proprietary rights.
Furthermore, there can be no assurance that any confidentiality agreements
between Advent and its employees or any license agreements with its clients will
provide meaningful protection of Advent's proprietary information in the event
of any unauthorized use or disclosure of such proprietary information. In
addition, the laws of certain countries do not protect Advent's proprietary
rights to the same extent as do the laws of the United States. Accordingly,
there can be no assurance that Advent will be able to protect its proprietary
software against unauthorized third party copying or use, which could adversely
affect Advent's business, operating results and financial condition.
EMPLOYEES
As of December 31, 1998, Advent had 481 full-time employees, including 54 in
sales, 75 in professional services, 43 in marketing, 129 in product development,
109 in client services and support and 71 in finance, administration, operations
and general management. Advent believes that it maintains competitive
compensation, benefits, equity participation and work environment policies to
assist in attracting and retaining qualified personnel. Advent's success depends
to a significant extent upon a limited number of members of senior management
and other key employees, including Stephanie DiMarco, Advent's Chairman of the
Board and Chief Executive Officer. The loss of the service of one or more senior
managers or other employees could have a material adverse effect upon Advent's
business, operating results and financial condition. None of Advent's employees
is represented by a labor union. Advent has not experienced any work stoppages
and considers its relations with its employees to be good.
ITEM 2. PROPERTIES
Advent leases office space in facilities in San Francisco, CA, New York, NY,
Millburn, NJ, Cambridge, MA, and Melbourne, Australia. Advent has three separate
leases in San Francisco, a 59,000 square foot lease that expires in 2008 with a
5 year extension option, a 32,000 square foot lease in an adjacent building that
expires in 2004, and a 60,000 square foot lease that expires in 2009. These are
Advent's principal executive offices, where product development, marketing,
technical support and production are located. Advent leases two separate office
spaces in New York; a 12,100 square foot lease and another 5,300 square foot
lease in the same building, expiring in 2003 and a 28,500 square foot lease for
MicroEdge, that expires in 2008 with a 5 year extension. Advent has a 1000
square foot lease in New Jersey that expires in 2000. Advent has a 6,700 square
foot lease in Cambridge, MA, which expires in 2003. In addition, there is a
4,000 square foot lease in Melbourne, Australia that expires in 2003. Advent
believes that its facilities are adequate for its near-term needs and that
suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of Advent as of March 17, 1999:
Name Age Position
- -------------------- ----- ------------------------------------------------
Stephanie G. DiMarco 41 Chairman of the Board and Chief Executive
Officer
Peter M. Caswell 42 President and Chief Operating Officer
Lily S. Chang 50 Executive Vice President and Chief Technology
Officer
Irv H. Lichtenwald 43 Senior Vice President, CFO and Secretary
- ----------
Ms. DiMarco founded Advent in June 1983 and, since such date, has served as
Chief Executive Officer. She became Chairman of the Board in September 1995. In
addition, she served as President until April of 1997, when Peter Caswell was
promoted to President and Chief Operating Officer. Ms. DiMarco holds a B.S. in
Business Administration from the University of California at Berkeley.
Mr. Caswell joined Advent in December 1993 as Vice President, Sales and
Professional Services. In 1996 Mr. Caswell took on responsibility for Advent's
marketing efforts and was promoted to Senior Vice President. In April 1997, Mr.
Caswell became President and Chief Operating Officer. From May 1986 to December
1993, Mr. Caswell held various management positions, including Vice President
and General Manager, Western Region, with Dun & Bradstreet Software Services,
Inc. and its predecessor, Management Science America, Inc., a supplier of
computer software for finance, marketing, manufacturing and human resource
functions. Mr. Caswell holds a diploma in Management Studies (M.B.A. equivalent)
and a Higher National Diploma in Agriculture (B.S. equivalent) from Seale Hayne
College in England.
Ms. Chang joined Advent in May 1993 as Vice President, Technology. In April
of 1997, Ms. Chang was promoted to Executive Vice President, Technology and was
also named Chief Technology Officer. From July 1989 to May 1993, Ms. Chang held
various positions, including Vice President, Strategic Accounts and Vice
President of Oracle Financial Applications, with Oracle Corporation, a software
licensing and consulting business. Ms. Chang holds a B.S. in Biochemistry from
Taiwan University.
Mr. Lichtenwald joined Advent in March 1995 as Chief Financial Officer.
From February 1984 to March 1995, Mr. Lichtenwald served as Chief Financial
Officer of Trinzic Corporation, a computer software developer, and its
predecessor Aion Corporation. From February 1982 to February 1984, he served as
controller of Visicorp, a computer software developer. Mr. Lichtenwald holds an
M.B.A. from the University of Chicago and a B.B.A. from Saginaw Valley State
College. Mr. Lichtenwald is a Certified Public Accountant.
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PART II
With the exception of the information incorporated by reference to the 1998
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 1998 Annual
Report to Stockholders is not deemed to be filed as part of this Form 10-K.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advent had approximately 166 stockholders of record at March 17, 1999. Other
information required by this Item is incorporated by reference to the sections
entitled "Selected Financial Data - Price Range of Common Stock" and "Corporate
Information - Stock Information" in Advent's 1998 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
Other information required by this Item is incorporated by reference to the
sections entitled "Selected Financial Data - Selected Annual Data" and
"-Selected Quarterly Data" in Advent's 1998 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Advent's 1998 Annual Report to Stockholders.
In addition, we operate in a rapidly changing environment that involves a
number of risks, some of which are beyond our control. The following discussion
highlights some of these risks.
Our operating results fluctuate significantly and we may not be able to
maintain our existing growth rates. Licenses into multi-user networked
environments have increased both in individual size and number, the timing and
size of individual license transactions are becoming increasingly important
factors in quarterly operating results. The sales cycles for transactions of
this size are often lengthy and unpredictable. There can be no assurance that we
will be successful in closing large license transactions such as these on a
timely basis or at all. Accordingly, if in the future revenues from large site
licenses constitute a material portion of our net revenues, the timing of such
licenses could cause additional variability in our quarterly operating results.
Our software products typically are shipped shortly after receipt of a signed
license agreement and initial payment and, consequently, software product
backlog at the beginning of any quarter typically represents only a small
portion of that quarter's expected revenues. Our expense levels are based in
significant part on our expectations of future revenues and therefore are
relatively fixed in the short term. Due to the fixed nature of these expenses
combined with the relatively high gross margin historically achieved by us on
products and services, an unanticipated decline in net revenues in any
particular quarter is likely to disproportionately adversely affect operating
results.
We have generally realized lower revenues from license fees in the first
quarter of the year than in the immediately preceding quarter. We believe that
this has been due primarily to the concentration by some clients of larger
capital purchases in the fourth quarter of the calendar year and their lower
purchasing activity during the subsequent first quarter. We believe our annual
incentive compensation plans which result in increased year-end sales activity
compound this factor. Furthermore, we have often recognized a substantial
portion of our license revenues in the last month of a quarter.
Due to all of the foregoing factors, we believe that period to period
comparisons of our operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
Our stock price has fluctuated significantly since the initial public
offering in November 1995. Like many companies in the technology and emerging
growth sector, our stock price may be subject to wide fluctuations, particularly
during times of high market volatility. If net revenues or earnings in any
quarter fail to meet the investment community's expectations, our stock price
could decline. In addition, the stock price may be affected by broader market
trends unrelated to our performance
We depend heavily on our product, Axys. In 1996, 1997 and 1998, we derived a
substantial majority of our net revenues from the licensing of Axys and related
products and services. In addition, many of our other products, such as Moxy,
Qube and various data interfaces were designed to operate with Axys to provide
an integrated solution. As a
10
<PAGE>
result, we believe that a majority of our net revenues, at least through 1999,
will be dependent upon continued market acceptance of Axys, enhancements or
upgrades to Axys and related products and services.
The success of our new product, Geneva, is uncertain. In 1995, we introduced
Geneva to target organizations with complex international accounting and
reporting requirements, and in late 1997, we announced its full commercial
availability. We are directing a significant amount of our product development
expenditures to the on-going development of Geneva and plan to devote a
significant amount of our future sales and marketing resources to Geneva. We
have limited experience in developing products for this market. Because of such
limited client experience, there can be no assurance that Geneva will not
require substantial software enhancements or modifications to satisfy
performance requirements of clients or to fix design defects or previously
undetected errors. Further, there can be no assurance that we will be successful
in marketing Geneva. Our failure to successfully market Geneva could adversely
affect our business and operating results.
We are developing an Internet Initiative. To take advantage of the Internet,
we have launched an Internet Initiative whereby we are developing services, both
announced and unannounced, to bring Internet based products and services to
clients. The first of these services, Rex, was launched during the first quarter
of 1997. The second service, Advent Browser Reporting, was launched in the third
quarter of 1998. As we begin development of new products and services under our
Internet Initiative, we have and will continue to enter into development
agreements with information providers, clients, or other companies in order to
accelerate the delivery of new products and services. There can be no assurance
that we will be successful in marketing Rex or in developing other Internet
services. Our failure to do so could adversely affect our business and operating
results.
We depend upon new products and product enhancements. Our future success
will continue to depend upon our ability to develop new products that address
the future needs of our target markets and to respond to emerging industry
standards and practices. Delays in the commencement of commercial shipments of
new products or enhancements may result in client dissatisfaction and delay or
loss of product revenues. In addition, our ability to develop new products and
product enhancements is dependent upon the products of other software vendors,
including certain system software vendors, such as Microsoft Corporation,
database vendors and development tool vendors. In the event that the products of
such vendors have design defects or flaws, or if such products are unexpectedly
delayed in their introduction, our business, operating results and financial
condition could be materially adversely affected.
We depend upon financial markets. The target clients for our products
include a range of organizations that manage investment portfolios, including
investment advisors, brokerage firms, banks and hedge funds. In addition, we
target corporations, public funds, universities and non-profit organizations,
which also manage investment portfolios and have many of the same needs. The
success of many of our clients is intrinsically linked to the health of the
financial markets. We believe that demand for our products could be
disproportionately affected by fluctuations, disruptions, instability or
downturns in the financial markets which may cause clients and potential clients
to exit the industry or delay, cancel or reduce any planned expenditures for
investment management systems and software products. Additionally, during the
next twelve months there is likely to be an increased customer focus on
addressing Year 2000 issues, creating the risk that customers may reallocate
capital expenditures to fix Year 2000 problems of existing systems.
Our relationship with Interactive Data is important. Many of our clients use
our proprietary interface to electronically retrieve pricing and other data from
Interactive Data. Interactive Data pay us a commission based on their revenues
from providing such data to our clients. Our software products have been
customized to be compatible with their system and such software would need to be
redesigned if their services were unavailable for any reason. In the event that
our relationship with Interactive Data were terminated or their services were
unavailable to our clients for any reason, replacing these services could be
costly and time consuming.
Our competition is intense. The market for investment management software is
segmented by the relative size of the organizations that manage investment
portfolios. In addition, the market in each segment is intensely competitive and
highly fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Our competitors
include providers of software and related services as well as providers of
timeshare services.
Competitors vary in size, scope of services offered and platforms supported.
In addition, we compete indirectly with existing and potential clients, many of
whom develop their own software for their particular needs and therefore may be
11
<PAGE>
reluctant to license software products offered by independent vendors like us.
Many of our competitors have longer operating histories and greater financial,
technical, sales and marketing resources than we do. There can be no assurance
that we will be able to compete successfully against current and future
competitors or that competitive pressures will not result in price reductions,
reduced operating margins and loss of market share, any one of which could
materially adversely affect our business, operating results and financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". We had no
holdings of derivative financial or commodity instruments at December 31, 1998.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, with the acquisition of
Portfolio Management Systems, these subsidiary revenues and capital spending are
transacted in Australian dollars. Results of operations from Portfolio
Management Systems are not material to the results of operations of Advent,
therefore, we believe that foreign currency exchange rates should not materially
adversely affect our overall financial position, results of operations or cash
flows. We believe that the fair value of our investment portfolio or related
income would not be significantly impacted by increases or decreases in interest
rates due mainly to the short-term nature of our investment portfolio. However,
a sharp increase in interest rates could have a material adverse affect on the
fair value of our investment portfolio. Conversely, sharp declines in interest
rates could seriously harm interest earnings of our investment portfolio.
The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for our
investment portfolio.
ESTIMATED FAIR VALUE
AT DECEMBER 31,
<TABLE>
<CAPTION>
1999 2000 2001 Thereafter Total
------------ ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Commercial Paper & Short-term obligations $ 6,595,000 $ - $ - $ - $ 6,595,000
Weighted Average Interest Rate 4.07 4.07
Corporate Notes & Bonds 3,405,000 - - - 3,405,000
Weighted Average Interest Rate 7.36 7.36
Municipal Notes & Bonds 10,140,000 2,250,000 - - 12,390,000
Weighted Average Interest Rate 4.52 5.03 4.61
------------ ----------- ------ --------- ------------
Total Portfolio, excluding equity securities $ 20,140,000 $ 2,250,000 $ - $ - $ 22,390,000
============ =========== ====== ========= ============
</TABLE>
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Financial Statements.
The following financial statements of Advent and the Report of
Independent Accountants are incorporated by reference to page 45
through 63 of Advent's 1998 Annual Report to Stockholders:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Operations - Years Ended December 31,
1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity- Years Ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows- Years Ended December 31,
1998, 1997, and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules.
The following financial statement schedules of Advent for the
years ended December 31, 1998, 1997, and 1996 are filed as part of
this Form 10-K and should be read in conjunction with Advent's
Financial Statements.
Report of Independent Accountants S-1
Schedule II --- Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are
not applicable or are not required or because the required
information is included in the Financial Statements or Notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, (Proxy
Statement) not later than 120 days after the end of the fiscal year covered by
this Form 10-K and certain information included therein is incorporated herein
by reference. Only those sections of the Proxy Statement that specifically
address the items set forth herein are incorporated by reference and such
incorporation does not include, specifically, the Performance Graph included in
such Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Advent's directors required by this Item is
incorporated by reference to Advent's Proxy Statement.
The information concerning Advent's executive officers required by this Item
is incorporated by reference herein to the section of the Form 10-K in Part I,
Item 4, entitled "Executive Officers of Advent."
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is to be set forth in Advent's Proxy Statement and such
information is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
1. Consolidated Financial Statements required to be filed by Item 8
of Form 10-K. See the list of Financial Statements contained in
Item 8 of this Report.
2. Financial Statement Schedules required to be filed by Item 8 of
Form 10-K. See the list of Financial Statement Schedules contained
in Item 8 of this Report.
14
<PAGE>
3. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits immediately
following the financial statement schedules are filed as part of, or
incorporated by reference into, this Form 10-K.
Exhibit
Number Description of Document
------- -----------------------------------------------------------------
2.1+ Agreement and Plan of Merger between Registrant and Advent
Software, Inc., a California corporation, effective November 10,
1995.
3.1+ Certificate of Incorporation of Registrant.
3.2+ Amended and Restated Certificate of Incorporation of Registrant.
3.3** Amended and Restated Bylaws of Registrant.
4.1+ Specimen Common Stock Certificate of Registrant.
10.1+ Form of Indemnification Agreement for Executive Officers and
Directors.
10.2+ 1992 Stock Plan, as amended, and form of stock option agreement.
10.3+ 1993 Profit Sharing & Employee Savings Plan, as amended.
10.4+ 1995 Employee Stock Purchase Plan and form of subscription
agreement.
10.5+ 1995 Director Option Plan and form of stock option agreement.
10.6+ Common Stock Option Agreement between Advent and Maurice J. Duca
dated September 15, 1989 as amended by the Amendment and
Correction to Common Stock Option Agreement dated July 1993.
10.7+ Full Service Office Lease dated April 14, 1992, as amended,
between Brannan Street Properties and Advent for facilities
located at 301 Brannan in San Francisco, California.
10.8+ Standard Form of Lease dated November 6, 1992 between Broadway
Management Company as agent for 500 Fifth Avenue Associates
and Advent for facilities located at 500 Fifth Avenue, New
York, New York.
10.9+ Severance Agreement between Advent and Peter M. Caswell dated
December 10, 1993.
10.10+* Agreement between Advent and Interactive Data Corporation dated
January 1, 1995.
10.14 Office Lease dated August 1, 1998, between SOMA Partners, L.P.
and Advent for facilities located at 301 Brannan in San
Francisco, California.
13.1 Selected Portions of Advent Software, Inc.'s 1998 Annual Report
to Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on page 16 of this Form 10-K).
27.1 Financial Data Schedule.
----------
+ Incorporated by reference to the exhibit filed with Advent's
registration statement filed on Form SB-2 (commission file
number 33-97912-LA), declared effective on November 15, 1995.
* Confidential treatment requested as to certain portions of this
exhibit.
** Incorporated by reference to Advent's Annual Report on Form 10-K
for the year ended December 31, 1997.
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 17th day of March, 1999.
ADVENT SOFTWARE, INC.
By: /s/ Stephanie G. DiMarco
----------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephanie G. DiMarco and Irv H. Lichtenwald,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
------------------------- -------------------------------- --------------
/s/ Stephanie G. DiMarco Chairman of the Board and March 17, 1999
------------------------- Chief Executive Officer and --------------
Stephanie G. DiMarco Director(Principal Executive
Officer)
/s/ Irv H. Lichtenwald Senior Vice President, Chief March 17, 1999
------------------------- Financial Officer and Secretary --------------
Irv H. Lichtenwald (Principal Financial and
Accounting Officer)
/s/ Frank H. Robinson Director March 17, 1999
------------------------- --------------
Frank H. Robinson
/s/ Wendell G. Van Auken Director March 17, 1999
------------------------- --------------
Wendell G. Van Auken
/s/ William F. Zuendt Director March 17, 1999
------------------------- --------------
William F. Zuendt
/s/ Monte Zweben Director March 17, 1999
- -------------------------- --------------
Monte Zweben
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Advent Software, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated January 15, 1999 appearing on page 63 of the 1998 Annual Report to
Shareholders of Advent Software,Inc (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 15, 1999
S-1
<PAGE>
Schedule II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1997, and 1998
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Expense Accounts Deductions Period
- ------------------ ---------- --------- -------- ---------- ----------
Allowance for
doubtful accounts:
1996 $ 258,000 $ 115,000 -- $ 138,000 $235,000
1997 $ 235,000 $ 248,000 -- $ 218,000 $265,000
1998 $ 265,000 $ 471,000 -- $ 374,000 $362,000
S-2
<PAGE>
EXHIBIT 10.14
OFFICE LEASE
SUMMARY OF LEASE TERMS
301 Brannan Street San Francisco, California
A. Date: August 1, 1998
B. Landlord: SOMA PARTNERS, L.P., a
California limited partnership
Landlord's address for notices: c/o Stein Kingsley Stein
[Paragraph 22(k)]
235 Montgomery Street
Suite 1810
San Francisco, CA 94104
C. Tenant: ADVENT SOFTWARE, INC., a
Delaware corporation
Tenant's address for notices: 301 Brannan Street
[Paragraph 22(k)] 6th Floor
San Francisco, CA 94107
Tenant Contact Person: Rick Roberts
D. Floor(s) on which Premises 2nd, 3rd, 4th, 5th & 6th
situated:
[Paragraph 1(g)]
E. Rentable area of Premises: 58,955 Square Feet
[Paragraph 1(g)]
F. Tenant's Percentage Share: 85.3%
[Paragraph 1(m)]
G. Base Expense Year: 1999
[Paragraph 1(a)]
H. Base Tax Year: 1999
[Paragraph 1(b)]
I. Term; Commencement and
Expiration Dates:
[Paragraph 2]
Ten (10) years,
commencing on
November 1, 1998, and
expiring on
October 31, 2008.
i.
<PAGE>
J. Basic Monthly Rental: Months 1 through 24: One Hundred
[Paragraph 3(a)] Fifty-two Thousand Seven Hundred
Fifty and 58/100 Dollars
($152,750.58)
Months 25 through 60: One Hundred
Fifty-nine Thousand Six Hundred
Sixty-nine and 75/100 Dollars
($159,669.75).
Months 61 through 120: One Hundred
Seventy-nine Thousand Three
Hundred Twenty-one and 46/100
Dollars ($179,321.46).
Basic Annual Rental: Months 1 through 24: One Million
Eight Hundred Thirty-three
Thousand Seven and 00/100 Dollars
($1,833,007.00).
Months 25 through 60: One Million
Nine Hundred Sixteen Thousand
Thirty-seven and 00/100 Dollars
($1,916,037.00).
Months 61 through 120: Two Million
One Hundred Fifty-one Thousand
Eight Hundred Fifty-seven and
50/100 Dollars ($2,151,857.50).
Monthly Storage Rental: One Thousand Four Hundred and
00/100 Dollars ($1,400.00)
K. CPI Adjustment Dates for November 1st of each year
the Monthly Storage Rental only: commencing in the year 1999
[Paragraph 3(c)]
L. Security Deposit: If Tenant's Net Worth is $30
[Paragraph 3(e)] million or more: $179,321.46.
If Tenant's Net Worth is less than
$30 million for four (4)
consecutive quarters: $358,642.92.
If Tenant's Net Worth is less than
$20 million for four (4)
consecutive quarters: $717,285.84.
M. Landlord's Broker(s): SKS Rosenberg, LLC
[Paragraph 22(q)]
ii.
<PAGE>
N. Tenant's Broker(s): [Paragraph 22(q)] Cushman & Wakefield
O. Exhibits and addenda: Exhibit A: Floor Plan
[Paragraph 22(u)] Exhibit A-1: Storage Area
Exhibit B: Building Rules and
Regulations
Exhibit C: Commencement Date
Memorandum
Exhibit D: License Agreement
Exhibit E: Base Building
Description
The provisions of the Lease identified above in brackets are those provisions
where references to particular Lease Terms appear. Each such reference shall
incorporate the applicable Lease Terms. In the event of any conflict between the
Summary of Lease Terms and the Lease, the latter shall control.
LANDLORD:
SOMA PARTNERS, L.P., a California
limited partnership
By SKS/Rosenberg, LLC, a Delaware
limited liability company, general
partner
By Stein Kingsley Stein, a California
corporation, Member
By /s/ Paul Stein
---------------------
Its President
---------------
TENANT:
ADVENT SOFTWARE, INC.,
a Delaware corporation
By /s/ Irv Lichtenwald
--------------------
Its CFO
----------------
iii.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. DEFINITIONS................................................................1
2. TERM.......................................................................7
3. RENTAL; SECURITY DEPOSIT...................................................8
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY TAXES..............11
5. OTHER TAXES PAYABLE BY TENANT.............................................13
6. USE.......................................................................14
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS................................15
8. ALTERATIONS; LIENS........................................................17
9. MAINTENANCE AND REPAIR....................................................20
10. SERVICES..................................................................22
11. ACCESS CONTROL............................................................24
12. ASSIGNMENT AND SUBLETTING.................................................25
(a) Restriction on Transfers.........................................25
(b) Landlord's Termination Right.....................................27
(c) Landlord's Approval Process......................................28
(d) Consideration for Transfer.......................................28
(e) Permitted Transfers..............................................29
(f) Documentation....................................................29
(g) Options Personal to Original Tenant..............................30
(h) Encumbrance of Lease.............................................30
(i) No Merger........................................................30
(j) Landlord's Costs.................................................30
13. WAIVER; INDEMNIFICATION...................................................30
14. INSURANCE.................................................................31
15. PROTECTION OF LENDERS.....................................................33
16. ENTRY BY LANDLORD.........................................................34
17. [Intentionally Omitted]...................................................35
18. DEFAULT AND REMEDIES......................................................35
19. DAMAGE BY FIRE OR OTHER CASUALTY..........................................38
20. EMINENT DOMAIN............................................................40
iv.
<PAGE>
21. HOLDING OVER..............................................................41
22. MISCELLANEOUS.............................................................41
(a) Limitation of Landlord's Liability...............................41
(b) Sale by Landlord.................................................42
(c) Estoppel Letter..................................................42
(d) Financial Statements.............................................43
(e) Right of Landlord To Perform.....................................43
(f) Rules and Regulations............................................44
(g) Attorneys' Fees..................................................44
(h) Waiver of Jury Trial.............................................44
(i) Waiver...........................................................44
(j) Light, Air and View..............................................45
(k) Notices..........................................................45
(l) Name.............................................................45
(m) Governing Law; Severability......................................45
(n) Definitions and Paragraph Headings; Successors...................45
(o) Time.............................................................46
(p) Examination of Lease.............................................46
(q) Brokerage........................................................46
(r) Directory Board..................................................46
(s) Authority........................................................46
(t) Amendments.......................................................47
(u) Exhibits and Addenda; Entire Agreement...........................47
23. OPTION TO EXTEND..........................................................47
26. PARKING...................................................................52
27. BRIDGE ACCESS.............................................................52
28. TENANT ALLOWANCE..........................................................53
29. APPROVALS.................................................................54
30. LICENSE AGREEMENT.........................................................54
31. TERMINATION OF EXISTING LEASES............................................54
EXHIBIT A: FLOOR PLAN
EXHIBIT A-1: STORAGE AREA
EXHIBIT B: BUILDING RULES AND REGULATIONS
EXHIBIT C: COMMENCEMENT DATE MEMORANDUM
EXHIBIT D: LICENSE AGREEMENT
EXHIBIT E: BASE BUILDING DESCRIPTION
v.
<PAGE>
301 BRANNAN STREET
OFFICE LEASE
THIS LEASE is dated for reference purposes only as of August __, 1998,
between SOMA PARTNERS, L.P., a California limited partnership ("Landlord"), and
ADVENT SOFTWARE, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises described in Paragraph 1(g) below, for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth.
1. DEFINITIONS. In addition to terms that are defined elsewhere in this
Lease, unless the context otherwise specifies or requires, the following terms
shall have the meanings herein specified:
(a) The term "Base Expense Year" shall mean the calendar year
set forth in Paragraph G of the Summary of Lease Terms.
(b) The term "Base Tax Year" shall mean the property tax fiscal
year set forth in Paragraph H of the Summary of Lease Terms.
(c) The term "Building" shall mean the office building located
at 301 Brannan Street in San Francisco, California.
(d) The term "Building Standard Improvements" shall mean those
improvements installed in the Premises at Landlord's expense.
(e) The term "Land" means the parcel(s) of land on which the
Building and the connected underground garage are located.
(f) The term "Operating Expenses" shall mean the total costs
and expenses incurred by Landlord in connection with the management, operation,
maintenance, repair and ownership of the Real Property (as defined in Paragraph
1(h) hereof), including, without limitation, the following costs: (1) salaries,
wages, bonuses and other compensation (including hospitalization, medical,
surgical, retirement plan, pension plan, union dues, life insurance, including
group life insurance, welfare and other fringe benefits, and vacation, holidays
and other paid absence benefits) relating to employees of Landlord or its agents
engaged in the management, operation,
<PAGE>
repair, or maintenance of the Real Property and costs of training such
employees; (2) payroll, social security, workers' compensation, unemployment and
similar taxes with respect to such employees of Landlord or its agents, and the
cost of providing disability or other benefits imposed by law or otherwise, with
respect to such employees; (3) uniforms (including the cleaning, replacement and
pressing thereof) provided to such employees; (4) premiums incurred by Landlord
with respect to fire, other casualty, boiler and machinery, theft, rent
interruption liability insurance, any other insurance as is deemed necessary or
advisable in the reasonable judgment of Landlord, or any insurance required by
the holder of any Superior Interest (as defined in Paragraph 15), all in such
amounts as Landlord determines to be appropriate, and are consistent with the
amounts maintained by comparable landlords in comparable office buildings in the
"Multimedia Gulch" area of the South of Market District of San Francisco
("Comparable Landlords"); (5) water charges and sewer rents or fees; (6)
license, permit and inspection fees and charges; (7) sales, use and excise taxes
on goods and services purchased by Landlord in connection with the operation,
maintenance or repair of the Real Property and building systems and equipment;
(8) telephone, telegraph, postage, stationery supplies and other expenses
incurred in connection with the operation, maintenance, or repair of the Real
Property; (9) management fees and expenses (including fees and expenses for
accounting, financial management, data processing and information services)
which are not in excess of such fees and expenses customarily charged by
Comparable Landlords as operating expenses; (10) repairs to and physical
maintenance of the Real Property, including building systems and appurtenances
thereto and normal repair of worn-out equipment, facilities and installations,
but excluding the replacement of building systems (except to the extent
otherwise included as an Operating Expense pursuant to this Paragraph 1(f));
(11) janitorial service for the public or common areas of the Real Property,
window cleaning, extermination, water treatment, rubbish removal, plumbing and
other services and inspection or service contracts for elevator, electrical,
mechanical, sanitary, heating, ventilation and air conditioning, and other
building equipment and systems, or as may otherwise be necessary or proper for
the operation or maintenance of the Real Property; (12) supplies, tools,
materials and equipment (to the extent the cost of such tools and equipment
would not be excluded from "Operating Expenses" in accordance with this
Paragraph 1(f) as capital assets) used in connection with the operation,
maintenance or repair of the Real Property; (13) accounting, legal and other
professional, consulting or service fees and expenses; (14) painting the
exterior or the public or common areas of the Building and the cost of
maintaining the sidewalks, landscaping and other common areas of the Real
Property; (15) all costs and expenses for electricity, chilled water, air
conditioning, water for heating, gas, fuel, steam, heat, lights, sewer service,
communications service, power and other energy related utilities required in
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connection with the operation, maintenance and repair of the public or common
areas of the Real Property; (16) the cost of any capital improvements made by
Landlord to the Real Property or capital assets acquired by Landlord that are:
(i) required under any governmental law or regulation with which the Real
Property was not required to comply on or before the Commencement Date (the cost
or allocable portion to be amortized over the useful life of the improvement or
asset, determined in accordance with generally accepted accounting principles
("GAAP"), (ii) designed to reduce other Operating Expenses (the cost or
allocable portion of which shall be included in Operating Expenses in any year
to the extent of such reduction in Operating Expenses during such year (as
reasonably estimated by Landlord) until the earlier of the date such cost is
fully amortized or the term of the Lease expires or is sooner terminated), or
(iii) any other capital improvements or capital assets, provided Tenant's
Percentage Share of the aggregate cost of such other capital improvements or
capital assets does not exceed $10,000.00 in any year of the term of the Lease
(or extension thereof), together with interest on the unamortized balance at a
rate per annum equal to either the Reference Rate (as defined in Paragraph 3(d)
hereof) charged at the time such capital improvements or capital assets are
constructed or acquired (to the extent Landlord did not borrow any funds to
finance such construction or acquisition), or such rate as may have been paid by
Landlord on funds borrowed for the purpose of constructing or acquiring such
capital improvements or capital assets (provided Landlord uses good faith
diligent efforts to obtain the lowest rate obtainable by Landlord), but in
either case not more than the maximum rate permitted by law at the time such
capital improvements or capital assets are constructed or acquired; (17) the
cost of furniture, window coverings, carpeting, decorations, landscaping and
other customary and ordinary items of personal property provided by Landlord for
use in common areas of the Real Property or in the Building office (to the
extent that such Building office is dedicated to the operation and management of
the Real Property and to the extent such is consistent with the practice of
Comparable Landlords), such costs to be amortized over the useful life thereof;
(18) any such expenses and costs resulting from substitution of work, labor,
material or services in lieu of any of the above itemizations, or for any such
additional work, labor, services or material resulting from compliance with any
governmental laws, rules, regulations or orders applicable to the common areas
of the Real Property; (19) property management office rent or rental value if
Landlord maintains a property management office in the Building; and (20) cost
of operation, repair and maintenance of the parking garage serving the Building,
including resurfacing, restriping and cleaning, provided that increases in such
parking costs shall not be recovered as increases in Operating Expenses to the
extent that such cost increases are recovered through increases in the parking
fees charged pursuant to Paragraph 26 hereof.
3.
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To the extent costs and expenses described above relate to both the
Real Property and other property, such costs and expenses shall, in determining
the amount of Operating Expenses, be allocated as Landlord may reasonably
determine to be appropriate.
Notwithstanding anything to the contrary in this Lease Operating
Expenses shall not include the following: (i) depreciation on the Building; (ii)
debt service; (iii) rental under any ground or underlying lease; (iv) interest
(except as expressly provided in this Paragraph 1(f)); (v) Real Property Taxes;
(vi) attorneys' fees and expenses incurred in connection with lease negotiations
with prospective Building tenants or Tenant; (vii) the cost of any improvements
or equipment or capital assets which would be properly classified as capital
expenditures (except for any capital expenditures expressly included in
Operating Expenses pursuant to this Paragraph 1(f)); (viii) the cost of
decorating, improving for tenant occupancy, painting or redecorating portions of
the Building to be demised to tenants; (ix) advertising expenses relating to
vacant space; (x) real estate brokers' or other leasing commissions; (xi) costs
occasioned by any violation of law by Landlord or its agents, employees, or
contractors; (xii) costs for which Landlord is directly reimbursed by insurance,
tenants or others; (xiii) attorneys' fees, costs or other disbursements incurred
in connection with negotiations or disputes with Tenant or any other occupant of
the Real Property and costs arising from the violation by Landlord or any
occupant of the Real Property of the terms and conditions of any lease or other
agreement; (xiv) depreciation, amortization or other expense reserves; (xv)
interest, charges and fees incurred on debt and all payments on mortgages; (xvi)
costs of sculptures, fountains, paintings and other art objects; (xvii) costs to
investigate the presence of (unless such investigation is required by law) or
respond to any claim of hazardous substance (as defined in the Lease),
contamination or damage, costs to remove any hazardous substance from the Real
Property and any judgments in connection with any hazardous substance exposure
or releases, except to the extent caused by the use, storage or disposal of the
hazardous substance in question by Tenant or unless caused by a change in the
environmental laws (as defined in the Lease) after the Commencement Date;
(xviii) overhead and profit increment paid to Landlord or to any subsidiaries or
affiliates of Landlord for goods and/or services in the Real Property to the
extent the same exceeds the costs of such goods and/or services rendered by
unaffiliated third parties on a competitive basis; (xix) costs and expenses
which Tenant pays directly to a third person; (xx) costs associated with the
operation of the business of the limited partnership, limited liability company,
corporation or other entity which constitutes the Landlord (as the same are
distinguished from the costs of operation of the Building), including
partnership, limited liability, corporation or other entity accounting and legal
matters, costs of defending any lawsuit with any mortgagee,
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costs of selling, syndicating, financing, mortgaging or hypothecating any of
Landlord's interest in the Building, costs of any disputes between Landlord and
its employees (if any) not engaged in Building operation, and disputes of
Landlord with Building management; (xxi) attorneys' fees paid in connection with
disputes with other tenants; (xxii) costs to correct any construction defect in
the Premises or the Real Property (to the extent such cost would be excluded
from Operating Expenses under this Paragraph 1(f)); (xxiii) costs to comply with
any CC&R's or underwriter's requirements applicable to the Premises or the Real
Property on the Commencement Date (to the extent such cost would be excluded
from Operating Expenses under this Paragraph 1(f)); (xxiv) lease payments and
costs for capital machinery and equipment, such as air conditioners, elevators,
and the like (to the extent the cost of such items would be excluded from
Operating Expenses under this Paragraph 1(f)); (xxv) costs associated with
utilities and services of a type not provided to Tenant; (xxvi) any expense
which would not normally be treated as an Operating Expense by Comparable
Landlords; and (xxvii) costs arising from the negligence or wilful misconduct of
Landlord or its agents, or any vendors, contractors, or providers of materials
or services selected, hired or engaged by Landlord.
(g) The term "Premises" shall mean the space in the Building
designated by cross-hatching on the floor plan(s) attached hereto as Exhibit A
(exclusive of the areas, if any, shown by shading) and situated on the floor(s)
of the Building specified in Paragraph D of the Summary of Lease Terms, together
with the appurtenant right to the use, in common with others, of lobbies,
entrances, stairs, elevators and other public portions of the Building.
Notwithstanding the foregoing, Landlord acknowledges that Tenant intends to
install a new card swipe security system in the Premises at Tenant's sole cost
and expense, and that in connection therewith Tenant shall have the exclusive
right, in common with Landlord, to utilize the stairs and common areas between
each floor of the Premises for the purposes of access, ingress and egress to
other portions of the Premises, and that no other tenant, person or entity shall
have the right to use said stairs and/or common areas under any circumstances
(except in the event of emergency). Tenant agrees that other tenants and persons
may use the stairs and other common areas between the garage parking area and
the first floor of the Building. Landlord and Tenant agree that the Premises
contain the number of square feet of rentable area specified in Paragraph E of
the Summary of Lease Terms. All the outside walls and windows of the Premises
and any space in the Premises used for shafts, stacks, pipes, conduits, ducts,
electric or other utilities, sinks or other Building facilities, and the use
thereof and access thereto through the Premises for the purposes of operation,
maintenance and repairs, are reserved to Landlord.
5.
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(h) The term "Real Property" shall mean, collectively, the
Land, the Building, the connected parking garage, and the other improvements on
the Land.
(i) The term "Real Property Taxes" shall mean all taxes,
assessments (whether general or special), excises, transit charges, housing fund
assessments or other housing charges, levies or fees, ordinary or extraordinary,
unforeseen as well as foreseen, of any kind, which are assessed, levied,
charged, confirmed or imposed on the Real Property or any part thereof, on the
Landlord with respect to the Real Property, on the act of entering into this
Lease or any other lease of space in the Real Property, on the use or occupancy
of the Real Property or any part thereof, with respect to services or utilities
consumed in the use, occupancy or operation of the Real Property, or on or
measured by the rent payable under this Lease or in connection with the business
of renting space in the Real Property, including, without limitation, any gross
income tax or excise tax levied with respect to the receipt of such rent, by the
United States of America, the State of California, the City and County of San
Francisco, any political subdivision, public corporation, district or other
political or public entity or public authority, and shall also include any other
tax, fee or other excise, however described, which may be levied or assessed in
lieu of, as a substitute (in whole or in part) for, or as an addition to, any
other Real Property Taxes. Real Property Taxes shall include reasonable
attorneys' fees, costs and disbursements incurred in connection with proceedings
to contest, determine or reduce Real Property Taxes, provided Landlord shall
have provided Tenant with written notice of the estimated amount of such fees
and the reason for initiating such proceedings and Tenant shall have agreed in
writing after receipt of Landlord written notice to pay its pro rata share of
such fees, costs and disbursements prior to Landlord commencing such
proceedings. If Tenant does not so agree, or Landlord does not seek its
agreement, then Tenant shall pay only such fees, costs and disbursements
incurred in connection with proceedings which actually reduce Real Property
Taxes.
Real Property Taxes shall not include income, gift, franchise,
transfer, inheritance or capital stock taxes, unless, due to a change in the
method of taxation, any of such taxes is levied or assessed against Landlord in
lieu of, or as a substitute (in whole or in part) for, any other charge which
would otherwise constitute a part of Real Property Taxes. Landlord and Tenant
acknowledge and agree that certain other buildings exist or encroach upon the
Land, that Tenant shall have no liability as to any item of Real Property Taxes
attributable or allocable to, or assessed against, buildings other than the
Building and that, except as set forth in Paragraph 4(c)(ii) hereof, Landlord's
good faith determination of the proper allocation of any item of Real Property
Taxes allocable to buildings other than the Building shall be binding on
Landlord and Tenant. All Real Property Taxes which can be
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paid by Landlord in installments shall be paid by Landlord in the maximum number
of installments permitted by law and not included as Real Property Taxes except
in the year in which the tax or assessment is actually paid.
(j) The term "Rental" shall include the Basic Monthly Rental
and the Monthly Storage Rental set forth in Paragraph J of the Summary of Lease
Terms, all additional rent, and any other charges payable by Tenant to Landlord
hereunder.
(k) The term "Storage Area" shall mean the Space in the
basement of the Building designated by cross-hatching on the floor plan attached
hereto as Exhibit A-1.
(l) The term "Tenant's Extra Improvements" shall mean those
improvements in addition to Building Standard Improvements which are to be
installed in the Premises by Tenant at its sole cost or using a tenant
improvement allowance provided by Landlord.
(m) The term "Tenant's Percentage Share" shall mean the
percentage figure specified in Paragraph F of the Summary of Lease Terms.
2. TERM.
(a) The term of this Lease shall commence and, unless ended
sooner as herein provided, shall expire on the dates respectively specified in
Paragraph I of the Summary of Lease Terms (respectively referred to hereinafter
as the "Commencement Date" and the "Expiration Date"). Landlord and Tenant
hereby agree to confirm the actual Commencement and Expiration Dates prior to
the commencement of the Lease term by executing and delivering to each other
counterparts of a Commencement Date Memorandum in the form of Exhibit C attached
hereto, but the term of this Lease shall commence on the Commencement Date and
end on the Expiration Date whether or not such amendment is executed.
(b) Tenant shall accept the Premises and the Storage Area "as
is" on the Commencement Date. Landlord shall have no obligation to construct or
install any improvements in the Premises or the Storage Area. Tenant
acknowledges that Tenant's possession of the Premises and the Storage Area shall
constitute Tenant's acknowledgment that the Premises and the Storage Area are in
all respects in the condition in which Landlord is required to deliver the
Premises and the Storage Area to Tenant under this Lease and that Tenant has
examined the Premises and the Storage Area and is fully informed to Tenant's
satisfaction of the physical and environmental condition and the utility of the
Premises and the Storage Area. Tenant acknowledges that Landlord, its agents and
employees and other persons acting on behalf of Landlord have made no
representation or warranty of any kind in connection with any matter relating to
the physical
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or environmental condition, value, fitness, use or zoning of the Premises or the
Storage Area upon which Tenant has relied directly or indirectly for any
purpose, except as specifically set forth in this Lease. Landlord hereby agrees
that if at any time during the term of this Lease the Storage Area is not
suitable for Tenant's intended purpose as a result of any water leakage,
flooding or any other weather condition, and Landlord is unable to repair the
Storage Area to prevent the water leakage or flooding following written notice
from Tenant and a reasonable period to repair the Storage Area, then Tenant
shall have the option to terminate this Lease as to the Storage Area, whereupon
all of Tenant's obligations under this Lease in connection with the Storage
Area, including, without limitation, Tenant's obligation to pay the Monthly
Storage Rental, shall automatically terminate, and Landlord and Tenant shall
enter into an amendment to this Lease memorializing said termination.
3. RENTAL; SECURITY DEPOSIT.
(a) Tenant agrees to pay to Landlord as Basic Monthly Rental
and Monthly Storage Rental for the Premises and the Storage Area the respective
sums specified in Paragraph J of the Summary of Lease Terms. The Monthly Storage
Rental shall be subject to increase in accordance with Paragraph 3(c) hereof.
(b) The Basic Monthly Rental and the Monthly Storage Rental
shall be paid to Landlord, in advance, on or before the first day of each and
every successive calendar month during the term hereof. In the event the term of
this Lease commences on a day other than the first day of a calendar month, or
ends on a day other than the last day of a calendar month, then the Basic
Monthly Rental and the Monthly Storage Rental for the first and/or last
fractional months of the term shall be appropriately prorated. All such
prorations shall be made on the basis of a 360-day year consisting of twelve
30-day months.
(c) The Monthly Storage Rental payable pursuant to Paragraph
3(a) hereof shall be subject to increase as set forth in this Paragraph 3(c).
Effective as of the Consumer Price Index (as hereinafter defined) rent
adjustment date(s) specified in Paragraph K of the Summary of Lease Terms (a
"CPI Adjustment Date"), the Monthly Storage Rental shall be the sum of (i) the
Monthly Storage Rental for the immediately preceding month payable under
Paragraph 3(a) hereof plus (ii) the product obtained by multiplying such Monthly
Storage Rental by the percentage increase in the Consumer Price Index measured
from the last month for which the Consumer Price Index is published immediately
preceding the Commencement Date to the last month for which the Consumer Price
Index is published immediately preceding the CPI Adjustment Date in question.
Notwithstanding the foregoing, in no event shall the Monthly Storage Rental
after any CPI Adjustment Date be less than the Monthly Storage Rental for the
month immediately preceding such CPI Adjustment Date. Landlord and Tenant each
shall, promptly after any
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determination of the Monthly Storage Rental pursuant to this Paragraph 3(c),
execute and deliver to the other a written amendment to this Lease which sets
forth the Monthly Storage Rental, but such Monthly Storage Rental shall become
effective whether or not such amendment is executed.
As used in this Lease, "Consumer Price Index" shall mean the Consumer
Price Index for All Urban Consumers for the metropolitan area in or nearest
which the Building is located, All Items, 1982-1984 equals 100, published by the
United States Department of Labor, Bureau of Labor Statistics. If the comparison
Consumer Price Index required for the calculation specified in Paragraph 3(c)
hereof is not available on the CPI Adjustment Date in question, Tenant shall
continue to pay the same amount of Monthly Storage Rental payable during the
period immediately preceding the CPI Adjustment Date in question until the
Consumer Price Index is available and the necessary calculation is made. As soon
as such calculation is made, Tenant shall immediately pay to Landlord the amount
of any underpayment of Monthly Storage Rental for the month or months that may
have elapsed pending the calculation of the Monthly Storage Rental for the CPI
Adjustment Date in question. If the federal government revises or ceases to
publish the Consumer Price Index, Landlord may substitute any substantially
equivalent official index published by the Bureau of Labor Statistics or its
successors and Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall thereafter constitute
the "Consumer Price Index" hereunder.
(d) Rental shall be paid to Landlord without notice, demand,
deduction or offset in lawful money of the United States in immediately
available funds or by good check as described below at the office of Landlord at
Landlord's address for notices specified in the Summary of Lease Terms, or to
such other person or at such other place as Landlord from time to time may
designate in writing. Payments made by check must be drawn either on a
California financial institution or on a financial institution that is a member
of the federal reserve system. All amounts of Rental, if not paid when due,
shall bear interest from the due date until paid at an annual rate of interest
(the "Interest Rate") equal to the lesser of (i) the maximum annual interest
rate allowed by law on such due date for business loans (not primarily for
personal, family or household purposes) not exempt from the usury law, or (ii) a
rate equal to the sum of five (5) percentage points over the publicly announced
reference rate (the "Reference Rate") charged on such due date by the San
Francisco Main Office of Bank of America NT & SA (or any successor bank thereto)
(or if there is no such publicly announced rate, the rate quoted by such bank in
pricing ninety (90) day commercial loans to substantial commercial borrowers).
In addition, Tenant acknowledges that late payment by Tenant to Landlord of
Rental will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of such
9.
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costs being extremely difficult to fix. Such costs include, without limitation,
processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any encumbrance and/or note secured by an encumbrance
covering the Premises. Therefore, if any installment of Rental due from Tenant
is not received within ten (10) days after Tenant receives written notice from
Landlord of the amount past due and owing, Tenant shall pay to Landlord an
additional sum of five percent (5%) of the overdue Rental as a late charge;
provided that, if Rental is not paid when due one (1) time during any calendar
year during the term of this Lease, then thereafter for the remainder of such
calendar year Tenant shall not be entitled to such notice and ten (10) day grace
period, and such late charge shall be assessed on any Rental not paid by 5:00
p.m. on the date due. Commencing on the immediately following calendar year, the
notice requirement described above shall be reinstated. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment of Rental by Tenant. Acceptance of
any late charge shall not constitute a waiver of Tenant's default with respect
to the overdue amount, or prevent Landlord from exercising any of the other
rights and remedies available to Landlord.
(e) On or before the Commencement Date, Tenant shall pay to
Landlord (a) an amount equal to the Basic Monthly Rental and the Monthly Storage
Rental for the first month of the term of this Lease, which amount Landlord
shall apply to the Basic Monthly Rental and the Monthly Storage Rental for such
first month, and (b) the amount of the security deposit specified in Paragraph L
of the Summary of Lease Terms (the "Deposit"). Failure to pay either the Rental
for the first month of the term of the Lease or the Deposit on or before the
Commencement Date shall be deemed an Event of Default (as defined in Paragraph
18(a)) under the Lease. The Deposit shall be held by Landlord as security for
the faithful performance by Tenant of all of the provisions of this Lease to be
performed or observed by Tenant. If Tenant fails to pay any Rental, or otherwise
defaults with respect to any provision of this Lease, Landlord may (but shall
not be obligated to) use, apply or retain all or any portion of the Deposit for
the payment of any Rental in default or for the payment of any other sum to
which Landlord may become obligated by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer thereby. If
Landlord so uses or applies all or any portion of the Deposit, Tenant shall
within ten (10) days after demand therefor deposit cash with Landlord in an
amount sufficient to restore the Deposit to the full amount thereof, and
Tenant's failure to do so shall, at Landlord's option, be an Event of Default
(as defined in Paragraph 18(a)) under this Lease. Landlord shall keep the
Security Deposit separate from its general accounts in a money market account of
its choosing ("Security Deposit Account") and shall remit any interest payable
thereunder to Tenant upon the Expiration Date or earlier termination of this
Lease. If
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Landlord exhausts the Security Deposit in paying any sums specified under this
Lease, Landlord may use any interest accrued in the Security Deposit Account to
pay any sums remaining owing. If Tenant performs all of Tenant's obligations
hereunder, the Deposit and the accrued interest, or so much thereof as has not
theretofore been applied by Landlord, shall be returned to Tenant (or, at
Landlord's option, to the last assignee, if any, of Tenant's interest hereunder,
unless the assignment agreement specifically requires that the Security Deposit
be returned to Tenant and Landlord shall have consented to such agreement in
writing) at the expiration or sooner termination of the term hereof and after
Tenant has vacated the Premises. Landlord's return of the Deposit and the
accrued interest or any part thereof shall not be construed as an admission that
Tenant has performed all of its obligations under this Lease. No trust
relationship is created herein between Landlord and Tenant with respect to the
Deposit.
4. TENANT'S SHARE OF OPERATING EXPENSES AND REAL PROPERTY TAXES.
(a) In addition to the Basic Monthly Rental and Monthly
Storage Rental payable during the term of this Lease, Tenant shall pay to
Landlord, as additional rent, Tenant's Percentage Share of (i) the amount, if
any, by which Operating Expenses paid or incurred by Landlord in any calendar
year subsequent to the Base Expense Year exceed the amount of Operating Expenses
paid or incurred by Landlord during the Base Expense Year, and (ii) the amount,
if any, by which Real Property Taxes paid or incurred by Landlord in any tax
year (July 1 through June 30) subsequent to the Base Tax Year exceed the amount
of Real Property Taxes paid or incurred by Landlord during the Base Tax Year.
Notwithstanding the foregoing, if the Building is less than 100% occupied in any
year during the term of this Lease, the variable costs included within Operating
Expenses and Real Property Taxes for such year shall be adjusted, for purposes
of the foregoing calculation, to the amount which they would have been if the
Building had been 100% occupied. If it shall not be lawful for Tenant to
reimburse Landlord for any increase in Real Property Taxes as defined herein,
the Basic Monthly Rental payable to Landlord prior to the imposition of such
increases in Real Property Taxes shall be increased to net Landlord the same net
Basic Monthly Rental after imposition of such increases in Real Property Taxes
as would have been received by Landlord prior to the imposition of such
increases in Real Property Taxes.
(b) During December of each calendar year or as soon
thereafter as practicable, Landlord shall give Tenant notice of its estimate of
the amounts payable by Tenant pursuant to Paragraph 4(a) above for the
succeeding calendar year. On or before the first day of each month during the
succeeding calendar year, Tenant shall pay to Landlord, as additional rent, one
twelfth (1/12) of such estimated amounts. If Landlord fails
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to deliver such notice to Tenant in December, Tenant shall continue to pay
Tenant's Percentage Share of increases in Operating Expenses and Real Property
Taxes on the basis of the prior year's estimate until the first day of the next
calendar month after such notice is given, provided that on such date Tenant
shall pay to Landlord the amount of such estimated adjustment payable to
Landlord for prior months during the year in question, less any portion thereof
previously paid by Tenant. If at any time it appears to Landlord that the
amounts payable under this Paragraph 4(b) for the current calendar year will
vary from Landlord's estimate, Landlord may, by giving written notice to Tenant,
revise Landlord's estimate for such year, and subsequent payments by Tenant for
such year shall be based on such revised estimate.
(c) (i) Within ninety (90) days after the close of each
calendar year or as soon after such ninety (90) day period as practicable,
Landlord shall deliver to Tenant a statement of the amounts payable under
Paragraph 4(a) above for such calendar year (an "annual statement") and, subject
to Paragraph 4(c)(ii), such statement shall be final and binding upon Landlord
and Tenant. If on the basis of such statement Tenant owes an amount that is more
than the estimated payments for such calendar year previously made by Tenant,
Tenant shall pay the deficiency to Landlord within fifteen (15) days after
delivery of the statement. If on the basis of such statement Tenant has paid to
Landlord an amount in excess of the amounts payable under Paragraph 4(a) above
for the preceding calendar year and no Event of Default shall have occurred and
be continuing, then Landlord, at its option, shall either promptly refund such
excess to Tenant or credit the amount thereof to the Basic Monthly Rental next
becoming due from Tenant until such credit has been exhausted.
(ii) Notwithstanding anything to the contrary in this Lease, Tenant
shall have the right, during the ninety (90) day period following delivery of an
annual statement, to deliver a written request to Landlord to audit Landlord's
records of Operating Expenses and Real Property Taxes ("Tenant's Audit
Request"). Within the sixty (60) day period following Tenant's Audit Request
(the "Audit Period"), Tenant shall have the right, at Tenant's sole cost, to
review in Landlord's offices Landlord's records of Operating Expenses and Real
Property Taxes for the subject calendar year. Such review shall be carried out
only by regular employees of Tenant or by a major national or regional firm of
certified public accountants, and not by any other third party. No such firm
shall be compensated on a contingency or other incentive basis. If, as of the
ninetieth (90th) day after delivery to Tenant of an annual statement, Tenant
shall not have delivered to Landlord Tenant's Audit Request, then such annual
statement shall be final and binding upon Landlord and Tenant, and Tenant shall
have no further right to audit or object to such annual statement. If within the
Audit Period, Tenant delivers to Landlord a written statement
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specifying objections to such annual statement (an "objection statement"), then
Tenant and Landlord shall meet to attempt to resolve such objection within
thirty (30) days after delivery of the objection statement. If such objection is
not resolved within such thirty (30) day period, then Tenant shall have the
right, at Tenant's cost, to require that the dispute be submitted to binding
determination by an independent certified public accountant ("CPA") approved by
Landlord and Tenant. Landlord shall reimburse Tenant for the reasonable charges
of the CPA in connection with such binding determination if, but only if, the
CPA shall have determined that the aggregate amount of all Operating Expenses
and Real Property Taxes payable by Tenant for the subject year in accordance
with the annual statement exceeds one hundred five percent (105%) of the
aggregate amount of all Operating Expenses and Real Property Taxes payable by
Tenant for the subject year in accordance with the CPA's determination. Landlord
and Tenant agree that such determination by a CPA shall be the exclusive method
of resolving disputes under this Paragraph 4(c). If Tenant does not elect, by
notice to Landlord within one hundred eighty-one (181) days after delivery of
the annual statement, to require such binding determination, then the annual
statement shall be final and binding. Notwithstanding that any such dispute
remains unresolved, Tenant shall be obligated to pay Landlord the full amount
claimed by Landlord as and when payable in accordance with this Paragraph 4(c),
but Landlord shall reimburse Tenant any amount determined, in accordance with
this Paragraph 4(c)(ii), to be an overpayment.
(d) If this Lease terminates on a day other than the last day
of a calendar year, the amounts payable by Tenant under Paragraph 4(a) above
with respect to the calendar year in which such termination occurs shall be
prorated on the basis which the number of days from the commencement of such
calendar year, to and including such termination date, bears to 360. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 4(c) above to be performed after such termination.
(e) It is the intention of Landlord and Tenant that the Basic
Monthly Rental paid to Landlord throughout the term of this Lease shall be
absolutely net of all increases, respectively, in Real Property Taxes over Real
Property Taxes for the Base Tax Year and of Operating Expenses over Operating
Expenses for the Base Expense Year, and the foregoing provisions of this
Paragraph 4 are intended to so provide.
5. OTHER TAXES PAYABLE BY TENANT. Tenant shall reimburse Landlord upon
demand for any and all taxes, but not including Real Property Taxes, payable by
Landlord (other than net income, gift, franchise, transfer, inheritance or
capital stock taxes) whether or not now customary or within the contemplation of
the parties hereto:
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(a) imposed upon, measured by or reasonably attributable to
the cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, other than Building
Standard Improvements made by Landlord, regardless of whether title to such
improvements shall be in Tenant or Landlord;
(b) imposed upon or measured by the Basic Monthly Rental
payable hereunder, including, without limitation, any gross income tax or excise
tax levied by the City and County of San Francisco, the State of California, the
federal government or any other governmental body with respect to the receipt of
such rental to the extent such are not Real Property Taxes;
(c) imposed upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or
(d) imposed upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises.
In the event that it shall not be lawful for Tenant to so reimburse
Landlord, the Basic Monthly Rental payable to Landlord under this Lease shall be
revised to net Landlord the same income after imposition of any such tax upon
Landlord as would have been received by Landlord hereunder prior to the
imposition of any such tax.
6. USE. Tenant agrees to use the Premises for general office purposes
which may include software engineering, diskette duplication, and packaging and
shipping operations, and agrees not to use nor permit the use of the Premises or
any part thereof for any other purpose. Tenant agrees not to do or permit to be
done in or about the Premises, the Storage Area or the Building, nor to bring or
keep or permit to be brought or kept in or about the Premises or the Building,
anything which is prohibited by or will in any way conflict with any law,
statute or governmental regulation now or hereafter in effect, or which is
prohibited by the standard form of fire insurance policy, or which will in any
way increase the existing rate of (or otherwise affect) fire or any other
insurance on the Building or any of its contents, unless Tenant agrees to pay
the cost of said increase. If any act or omission of Tenant results in any such
increase in premium rates, Tenant shall pay to Landlord, as additional rent,
upon demand the amount of such increase to the extent attributable to Tenant's
acts or omissions. Tenant agrees not to do or permit to be done anything in, on
or about the Premises, the Storage Area or the Building which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building, or injure them, or use or allow the Premises or the Storage Area to be
used for any unlawful
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purpose. Tenant agrees not to cause, maintain or permit any nuisance in, on or
about the Premises, the Storage Area or the Building, nor to use or permit to be
used any loudspeaker or other device, system or apparatus which can be heard
outside the Premises or the Storage Area without the prior written consent of
Landlord nor to permit any objectionable odors, bright lights or electrical or
radio interference which may annoy or interfere with the rights of other tenants
of the Building or the public. Tenant agrees not to commit or suffer to be
committed any waste in or upon the Premises or the Storage Area. The provisions
of this Paragraph 6 are for the benefit of Landlord only and shall not be
construed to be for the benefit of any tenant or occupant of the Building.
7. COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS.
(a) Tenant agrees at its sole cost and expense to promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now or hereafter constituted affecting the Premises or the
Storage Area, insofar as any thereof relates to or affects the condition, use or
occupancy of the Premises or the Storage Area, excluding all obligations to
alter or improve the Premises or the Storage Area which are necessitated due to
reasons other than Tenant's improvements or particular use of the Premises or
the Storage Area. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant (whether Landlord be a party
thereto or not) that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. If Tenant's use or
operation of the Premises or the Storage Area or any of Tenant's equipment
therein requires a governmental permit, license or other authorization or any
notice to any governmental agency, Tenant shall promptly provide a copy thereof
to Landlord. Tenant agrees not to violate any direction or occupancy certificate
issued pursuant to law by any public officer and any covenants, conditions and
restrictions recorded against the Real Property. Landlord warrants that, to its
actual knowledge as of the date of this Lease, no notices from any governmental
agency have been issued regarding the Real Property being in violation of any
"environmental laws" (as hereinafter defined). Landlord warrants that to its
actual knowledge as of the Commencement Date, it has not received any notices
that the Real Property is not in compliance with applicable laws, including
environmental laws. Landlord's "actual knowledge" as used in this Lease shall
mean the actual knowledge of the principals of Landlord.
(b) Tenant shall not bring or keep, or permit to be brought or
kept, in the Premises, in the Storage Area or in or on the Real Property any
"hazardous substance" (as hereinafter defined). Tenant and Landlord shall not
manufacture, generate, treat, handle, store or dispose of any hazardous
substance in the Premises, in the Storage Area or in or on the Real Property,
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except for normal and customary amounts of those hazardous substances typically
used in general office use, including, without limitation, office and cleaning
supplies, provided such substances are stored, used and disposed of in
compliance with all environmental laws, or use the Premises or the Storage Area
for any such purpose, or emit, release or discharge any hazardous substance into
any air, soil, surface water or groundwater comprising the Premises or the Real
Property, or permit any person using or occupying the Premises to do any of the
foregoing. Tenant shall comply, and shall cause all persons using or occupying
the Premises or the Storage Area to comply, with all environmental laws
applicable to the Premises or the Storage Area, the use or occupancy of the
Premises or the Storage Area or any operation or activity therein. Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all
claims, judgements, damages, penalties, fines, liabilities, losses, suits,
administrative proceedings and costs (including but not limited to, reasonable
attorneys' and consultants' fees) incurred by Landlord due to the presence of
any hazardous substance on the Real Property to the extent resulting from the
acts or omissions of Tenant, its employees, agents, representatives, contractors
and/or invitees. Landlord shall indemnify, defend and hold Tenant harmless from
and against any and all claims, judgements, damages, penalties, fines,
liabilities, losses, suits, administrative proceedings and costs (including but
not limited to, reasonable attorneys' and consultants' fees) incurred by Tenant
due to the presence of any hazardous substance on the Real Property to the
extent resulting from the acts or omissions of Landlord, its employees, agents,
representatives, contractors and/or invitees; provided, however, that Landlord
shall not be obligated to indemnify, defend and hold harmless Tenant from and
against the acts or omission of third party unaffiliated with Landlord, when
such acts or omissions are imputed to Landlord by operation of law or otherwise,
or because Landlord is the record owner of the Building. In such event, the
foregoing indemnity shall not apply. As used in this Lease, "hazardous
substance" shall mean any substance or material that is described as a toxic,
hazardous, corrosive, ignitable, flammable or reactive substance, waste or
material or a pollutant or contaminant, or words of similar import, in any of
the environmental laws, and includes asbestos, petroleum, petroleum products,
polychlorinated biphenyls, radon gas, radioactive matter, and chemicals which
may cause cancer or reproductive toxicity. As used in this Lease, "environmental
laws" shall mean all federal, state and local laws, ordinances, rules and
regulations now or hereafter in force, as amended from time to time, in any way
relating to or regulating human health or safety, or industrial hygiene or
environmental conditions, or protection of the environment, or pollution or
contamination of the air, soil, surface water or groundwater.
(c) Tenant shall immediately furnish Landlord with any (i)
notices received from any insurance company or govern-
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mental agency or inspection bureau regarding any unsafe or unlawful conditions
within the Premises or the Storage Area, and (ii) notices or other
communications sent by or on behalf of Tenant to any agency relating to
environmental laws or hazardous substances affecting the Premises.
(d) California law requires landlords to disclose to tenants
the existence of certain hazardous substances. Accordingly, the existence of
gasoline and other automotive fluids, asbestos containing materials, maintenance
fluids, copying fluids and other office supplies and equipment, certain
construction and finish materials, tobacco smoke, cosmetics and other personal
items must be disclosed. Gasoline and other automotive fluids are found in the
basement garage area of the Building. Cleaning, lubricating and hydraulic fluids
used in the operation and maintenance of the Building are found in the utility
areas of the Building not generally accessible to Building occupants or the
public. Many Building occupants use copy machines and printers with associated
fluids and toners, and pens, markers, inks, and office equipment that may
contain hazardous substances. Certain adhesives, paints and other construction
materials and finishes used in portions of the Building may contain hazardous
substances. Although smoking is prohibited in the public areas of the Building,
these areas may from time to time be exposed to tobacco smoke. Building
occupants and other persons entering the Building from time to time may use or
carry prescription and non-prescription drugs, perfumes, cosmetics and other
toiletries, and foods and beverages, some of which may contain hazardous
substances.
(e) The provisions of this Paragraph 7 are for the benefit of
Landlord and Tenant only and shall not be construed to be for the benefit of any
other tenant or occupant of the Building.
8. ALTERATIONS; LIENS.
(a) Tenant agrees not to make or suffer to be made any
alteration, addition or improvement to or of the Premises or the Storage Area
(hereinafter referred to as "Alterations"), or any part thereof, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed; provided, however, that Landlord's consent shall not be
required for Alterations which are not structural, do not affect the Building
systems and do not affect the appearance of the exterior of the Building. For
Alterations which require Landlord's consent and which involve engineering
changes to the Premises or the Building, Tenant shall submit to Landlord written
notice of its proposed Alterations, including all plans and specifications
therefor. Landlord shall notify Tenant in writing of its approval or reasonable
disapproval of such Alterations within thirty (30) days of receiving such
notice. If Landlord does not indicate its approval or disapproval within such
time period, Tenant shall send Landlord a second notice
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regarding the Alterations, and if Landlord does not approve or reasonably
disapprove the Alterations within ten (10) days of receiving this second
notification, the Alterations shall be deemed approved by Landlord. For
Alterations which require Landlord's consent and which do not involve
engineering changes, Tenant shall submit to Landlord written notice of its
proposed Alterations, including all plans and specifications therefor to the
extent such plans and specifications are necessary. Landlord shall notify Tenant
in writing of its approval or reasonable disapproval of such Alterations within
twenty (20) days of receiving such notice. If Landlord does not indicate its
approval or reasonable disapproval within such time period, Tenant shall send
Landlord a second notice regarding the Alterations, and if Landlord does not
approve or reasonably disapprove of the Alterations within ten (10) days of
receiving this second notification, the Alterations shall be deemed approved by
Landlord. In its approval of any Alteration, Landlord shall indicate to Tenant
whether such approval is conditioned upon Tenant removing such Alteration upon
the expiration or earlier termination of the Lease.
If Landlord consents to the making of any Alterations or if such
consent is not required, the same shall be designed and constructed or installed
by Tenant at its expense (including expenses incurred in complying with
applicable laws, including laws relating to the handling and disposal of ACM).
When Tenant submits its plans and specifications to Landlord for its approval,
Tenant also shall submit the name of the general contractor Tenant desires to
use to construct the Alterations. Landlord shall notify Tenant in writing of its
approval or reasonable disapproval of such contractor within twenty (20) days of
receiving such notice. If Landlord does not indicate its approval or reasonable
disapproval of such contractor within such time period, Tenant shall send
Landlord a second notice regarding the general contractor, and if Landlord does
not approve or reasonably disapprove of such contractor within ten (10) days of
receiving this second notification, the general contractor shall be deemed
approved by Landlord. All Alterations shall be designed and constructed in
compliance with all applicable codes, laws, ordinances, rules and regulations.
The design and construction of any Alterations shall be performed in accordance
with Landlord's applicable and reasonable rules, regulations and requirements,
including the Asbestos Rules, to the extent such rules, regulations and
requirements are available and a copy of same is provided to Tenant. Under no
circumstances shall Landlord be liable to Tenant for any damage, loss, cost or
expense incurred by Tenant on account of Tenant's plans and specifications,
Tenant's contractors or subcontractors, design of any work, construction of any
work, or delay in completion of any work. All sums due to such contractors, if
paid by Landlord due to Tenant's failure to pay such sums when due and after
written notice thereof to Tenant, shall bear interest payable to Landlord at the
Interest Rate until fully paid.
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Upon the expiration or earlier termination of this Lease, Tenant, at
its expense, shall promptly remove any such Alterations made by Tenant and
designated by Landlord to be so removed, repair any damage to the Premises
caused by such removal and restore the area of the removal to a condition such
that the Premises could be occupied by another tenant. Tenant shall use the
general contractor designated by Landlord or any other construction professional
reasonably approved by Landlord for such removal and repair. Notwithstanding
anything to the contrary in this Lease, Tenant shall have no obligation to
remove any Alterations existing as of the Commencement Date or any Alterations
approved by Landlord during the term of this Lease unless such approval, when
given, was expressly conditioned upon Tenant's removal of such Alteration upon
the expiration or earlier termination of this Lease. Notwithstanding anything to
the contrary in this Lease, Tenant shall be required to remove any alteration,
addition or improvement to or of the Premises or the Storage Area made after the
Commencement Date for which Tenant does not seek Landlord's prior written
approval or for which Landlord conditioned its approval thereof upon removal of
the Alteration upon the expiration of earlier termination of the Lease. Except
for Alterations which cannot be removed without structural injury to the
Premises, at any time Tenant may remove from the Premises, the Storage Area or
the License Area (as defined in Exhibit D) any property of Tenant and any
Alterations, trade fixtures, equipment, furniture or furnishings that Tenant
installed in the Premises, the Storage Area or the License Area at any time,
including prior to the Commencement Date, provided Tenant complies with the
provisions of this Paragraph 8(a).
All trade fixtures, equipment, furniture, furnishings and personal
property installed in the Premises, the Storage Area or the License Area at
Tenant's expense ("Tenant's Property") shall at all times remain Tenant's
property and Tenant shall be entitled to all depreciation, amortization and
other tax benefits with respect thereto. Tenant shall be entitled to all
insurance proceeds and condemnation awards and settlements payable with respect
to Tenant's Property and any Alteration, trade fixtures, equipment, furniture
and furnishings installed by Tenant in the Premises, the Storage Area or the
License Area at any time, including prior to the Commencement Date. Landlord
shall have no lien or other interest whatsoever in any item of Tenant's
Property, or any portion thereof or interest therein located in the Premises or
elsewhere, and Landlord hereby waives all such liens and interests. Within ten
(10) days following Tenant's request, Landlord shall execute documents in a form
reasonably acceptable to Landlord and Tenant to evidence Landlord's waiver of
any right, title, lien or interest in Tenant's Property located in the Premises.
(b) Tenant agrees to keep the Premises and the Real Property
free from any liens arising out of any work performed, materials furnished or
obligations incurred by Tenant. Tenant
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shall promptly and fully pay and discharge all claims on which any such lien
could be based. In the event that Tenant does not, within ten (10) days
following the recording of notice of any such lien, cause the same to be
released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All sums paid by Landlord for such purpose, and
all expenses incurred by it in connection therewith, shall be payable to
Landlord by Tenant, as additional rent, on demand, together with interest at the
Interest Rate from the date such expenses are incurred by Landlord to the date
of the payment thereof by Tenant to Landlord. Landlord shall have the right at
all times to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper for the protection of
Landlord, the Premises, the Building, or the Real Property, from mechanic's and
materialmen's and like liens. Tenant shall give Landlord at least ten (10) days'
prior written notice of the date of commencement of any construction on the
Premises in order to permit the posting of such notices.
9. MAINTENANCE AND REPAIR.
(a) Excepting the requirements under the Lease relating to
Landlord's repair obligations, by taking possession of the Premises and the
Storage Area, Tenant accepts the Premises and the Storage Area as being in the
condition in which Landlord is obligated to deliver the Premises and the Storage
Area. Tenant, at its expense, shall at all times keep the Premises and the
Storage Area and every part thereof and all equipment, fixtures and improvements
therein in good and sanitary order, condition and repair, damage thereto by acts
of God, casualties, and condemnation excepted, and Tenant waives all rights
under, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942
of the California Civil Code and under any similar law or ordinance now or
hereafter in effect. Upon the expiration or sooner termination of this Lease,
Tenant shall surrender the Premises and the Storage Area and (unless designated
by Landlord to be removed or Tenant elected to remove in accordance with
Paragraph 8 above) all Alterations thereto to Landlord in the same condition as
when received, damage thereto by fire, the perils of the extended coverage
endorsement, earthquake, ordinary wear and tear, acts of God, casualties,
condemnation, and Alterations which Tenant is not required to remove, all
excepted. It is agreed that Landlord has no obligation, and has made no
promises, to alter, add to, remodel, improve, repair, decorate or paint the
Premises or the Storage Area or any part thereof and that no representations
respecting the condition of the Premises, the Storage Area, the Building or the
Real Property have been made by Landlord to Tenant except as may be specifically
set forth in this Lease. Landlord shall refurbish the common areas of the
Building including, without limitation, the lobby on or before July 1, 1999. The
scope of
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such refurbishment shall be determined in Landlord's sole and absolute
discretion. The cost of said refurbishment shall be at the Landlord's sole cost
and expense and shall not constitute an Operating Expense under this Lease. No
representation or warranty, express or implied, is made with respect to (i) the
condition of the Premises, the Storage Area, or the Building, (ii) the fitness
of the Premises or the Storage Area for Tenant's intended use, (iii) the degree
of sound transfer within the Building, (iv) the absence of electrical or radio
interference in the Premises or the Building, (v) the condition, capacity or
performance of electrical or communications systems or facilities, or (vi) the
absence of objectionable odors, bright lights or other conditions which may
affect Tenant's use and enjoyment of the Premises, the Storage Area or the
Building.
(b) Landlord agrees to make all necessary repairs to the
structure (including the roof, exterior walls and foundation), the exterior, and
the public and common areas of the Building and the building systems (including,
without limitation, the mechanical, electrical, elevator, plumbing, sewer,
heating and air conditioning systems to the extent such systems constitute base
building systems as described on Exhibit E attached hereto (as opposed to
systems relating to local distribution within the Premises)) therein, and to
maintain the same in reasonably good order and condition. Any damage arising
from the acts of Tenant, its agents, employees, contractors or invitees shall be
repaired by Landlord at Tenant's sole expense. Tenant shall pay Landlord on
demand the cost of any such repair. Notwithstanding anything to the contrary in
this Lease, if Tenant provides written notice (or oral notice in the event of an
emergency, such as damage to or destruction to or of a structural component, or
any electrical, plumbing, or mechanical system of or in the Building or the
Premises (including, but not limited to, damage to the roof)) to Landlord of an
event or circumstances which requires the action of Landlord with respect to
repair and/or maintenance, and Landlord fails to commence to perform such action
within a reasonable period of time, given the circumstance, after the receipt of
such notice, but in any event not later than fifteen (15) days after receipt of
such notice, and thereafter to diligently prosecute such action to completion,
then, Tenant shall send Landlord a second notice regarding Tenant's intent to
perform such repair (except in the event of an emergency, in which case no
second notice is required and Tenant may commence the required repairs
immediately upon Landlord's failure to commence such repairs within a reasonable
period of time given the emergency nature of the repairs), and if Landlord does
not respond within ten (10) days of receiving this second notification, Tenant
shall be entitled to reimbursement by Landlord of Tenant's reasonable costs and
expenses in making such repair, plus interest at the Interest Rate specified in
Paragraph 3(d) hereof. In the event Tenant undertakes such repairs, and such
repairs will affect the building systems or the structure of the Building,
Tenant shall use only those
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contractors used by Landlord in the Building for repairs to such systems unless
such contractors are unwilling or unable to perform, or timely perform, such
repairs, in which event Tenant may use the services of any other qualified
contractor which normally and regularly performs similar work in comparable
buildings in the "Multimedia Gulch" area of the South of Market District of San
Francisco. Further, if Landlord does not deliver a detailed written objection to
Tenant within thirty (30) days after receipt of an invoice by Tenant of its
costs of repairs which Tenant claims should have been made by Landlord, and if
such invoice from Tenant sets forth a reasonably particularized breakdown of its
costs and expenses in connection with taking such action on behalf of Landlord,
then it shall be deemed that Landlord agrees with the cost and expenses incurred
by Tenant and shall thereafter be obligated to reimburse Tenant for such costs
and expenses, with interest thereon at the Interest Rate. If Landlord fails to
so reimburse Tenant therefor, Tenant may bring an action in a court of
appropriate jurisdiction to recover such sum from Landlord. Landlord agrees to
maintain the Real Property in a manner comparable to that of other first class
office buildings in the "Multimedia Gulch" area of the South of Market District
of San Francisco. Landlord further agrees to have a qualified engineer who has
knowledge of the Building and can work independent of Tenant's employees on call
twenty-four (24) hours a day, seven (7) days a week.
10. SERVICES.
(a) Subject to the terms of this Paragraph 10 and subject to
applicable laws, regulations and rules of public utilities, Landlord shall
furnish to the Premises water, electrical power, gas, heating and air
conditioning, elevator service and plumbing services suitable for Tenant's use
of the Premises pursuant to Paragraph 6 hereof, twenty-four hours per day, seven
(7) days per week, or during such other period as may be prescribed by any
applicable policies or regulations of any utility or governmental agency; and
basic janitorial service on weekdays (excluding union holidays). Unless
otherwise specifically provided in this Lease, all means of distribution of all
utilities within the Premises shall be supplied by Tenant at its expense, and
Tenant shall pay the cost of water, gas, electricity, sewerage and other
utilities. Landlord shall install, or cause Tenant to install, prior to the
Commencement Date, at Tenant's expense, a separate meter in the Premises for
electricity of a design and type to be reasonably approved by Landlord. Tenant
shall pay the cost of janitorial services to the Premises provided by the
Landlord. Tenant shall pay the cost of chilled water that Landlord supplies to
the Premises for air conditioning. Tenant shall pay such janitorial and
utilities costs within fifteen (15) days after delivery of invoices therefor.
Tenant agrees that at all times it will cooperate fully with Landlord
and abide by all regulations and requirements that
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Landlord may prescribe for the proper functioning and protection of the Building
heating, ventilating and air conditioning systems. Landlord shall not be liable
for and Tenant shall not be entitled to any abatement or reduction of Rental by
reason of Landlord's failure to furnish any of the foregoing or any other
utilities or services when such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or disputes of any
character, by the limitation, curtailment, rationing or restrictions on use of
electricity, gas or any form of energy, or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord. No such failure and no
interruption of utilities or services from any cause whatsoever shall constitute
an eviction of Tenant, constructive or otherwise, or impose upon Landlord any
liability whatsoever, including, but not limited to, liability for consequential
damages or loss of business by Tenant. Tenant hereby waives the provisions of
California Civil Code Section 1932(1) or any other applicable existing or future
law, ordinance or governmental regulation permitting the termination of this
Lease due to such failure or interruption. Landlord shall not be liable under
any circumstances for injury to or death of any person or damage to or
destruction of property, however occurring, through or in connection with or
incidental to the furnishing of or the failure to furnish any of the foregoing
utilities or services or any other utilities or services. Landlord agrees to
meet with Tenant to attempt to resolve any issues or problems Tenant may have
with the janitorial service or any other services provided to Tenant pursuant to
this Paragraph 10.
(b) Landlord makes no representation to Tenant regarding the
adequacy or fitness of the heating, air conditioning or ventilation equipment in
the Building to maintain temperatures that may be required for, or because of,
any of Tenant's equipment which uses other than the fractional horsepower
normally required for office equipment, and Landlord shall have no liability for
loss or damage suffered by Tenant or others in connection therewith. Tenant
agrees it will not, without the written consent of Landlord, use any equipment,
apparatus or device in the Premises which will, individually or in the
aggregate, in any way cause the amount of electricity, water or heating,
ventilation or air conditioning supplied to the Premises to exceed Tenant's
Percentage Share of the design capacity of the Building's systems. Tenant
covenants that at all times its use of electric current shall never exceed the
capacity of the feeders, risers or electrical installations of the Building. The
costs to repair any damage Tenant causes to the base building systems due to
Tenant's use of such systems beyond their design capacity shall be payable to
Landlord within ten (10) days of submission of a statement setting forth such
costs. Landlord shall provide Tenant with information regarding the capacity of
such systems on or before the Commencement Date. Landlord shall not, in any way,
be liable or responsible to Tenant for any loss or damage or expense which
Tenant may incur or sustain if, for any reasons beyond Landlord's reasonable
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control, either the quantity or character of electric service is changed or is
no longer available or suitable for Tenant's requirements. If submetering of
electricity in the Building will not be permitted under future laws or
regulations, the Base Monthly Rental will then be equitably adjusted to include
an additional payment to Landlord reflecting the cost to Landlord for furnishing
electricity to the Premises.
(c) Any amounts which Tenant is required to pay pursuant
to this Paragraph 10 shall constitute additional rent.
(d) In the event that Landlord, at Tenant's request, provides
services to Tenant that are not otherwise required to be provided in this Lease,
Tenant shall pay Landlord's reasonable charges for such services (including,
without limitation, Landlord's then current administrative fee therefor) upon
billing therefor provided, prior to providing such service, Landlord delivers to
Tenant a written estimate of the cost of such service and Tenant delivers a
written notice to Landlord stating that it agrees to pay for the cost of such
service. Any such request for extra services shall be made not less than one (1)
business day in advance.
(e) In the event any governmental authority having
jurisdiction over the Real Property for the Building promulgates or revises any
law, ordinance or regulation or building, fire or other code or imposes
mandatory or voluntary controls or guidelines on Landlord and the Real Property
or the Building relating to the use or conservation of energy or utilities or
the reduction of automobile or other emissions (collectively "Controls") or in
the event Landlord is required or elects to make alterations to the Real
Property or the Building in order to comply with such mandatory or voluntary
Controls, Landlord may, in its sole discretion, comply with such Controls or
make such alterations to the Real Property or the Building related thereto;
provided, however, that Landlord shall only comply with such voluntary controls
if Comparable Landlords are generally complying with such controls. Such
compliance and the making of such alterations shall not constitute an eviction
of Tenant, constructive or otherwise, or impose upon Landlord any liability
whatsoever, including, but not limited to, liability for consequential damages
or loss of business by Tenant.
11. ACCESS CONTROL.
(a) Landlord shall arrange for a security guard to be on duty
in the lobby of the Building 24 hours per day, seven days per week. Tenant shall
pay the cost of such security guard as additional rent within fifteen (15) days
after delivery of invoices therefor. Notwithstanding anything to the contrary in
this Lease, Tenant shall have the right to approve of the person and/or entity
selected by Landlord to provide security services to the Premises, which
approval shall not be unreasonably withheld. Landlord shall have the right from
time to time to
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adopt such policies, procedures and programs as it shall, in Landlord's
reasonable discretion, deem necessary or appropriate for the security of the
Building, and Tenant shall cooperate with Landlord in the enforcement of, and
shall comply with, the policies, procedures and programs adopted by Landlord
insofar as the same pertain to Tenant, its agents, employees, contractors and
invitees. Landlord agrees to meet with Tenant to resolve any issues or problems
Tenant may have with the security services. Landlord further agrees to consult
with Tenant regarding any changes in security policies, procedures and programs
that may adversely affect the security of the Premises in Landlord's reasonable
opinion.
(b) In no event shall Landlord be liable for damages resulting
from any error with regard to the admission to or the exclusion from the
Building of any person. In the case of invasion, mob, riot, public demonstration
or other circumstances rendering such action advisable in Landlord's opinion,
Landlord reserves the right to prevent access to the Building during the
continuance of the same by such action as Landlord may deem appropriate,
including closing doors.
(c) In the event of any picketing, public demonstration or
other threat to the security of the Building and to the extent attributable to
Tenant, Tenant shall reimburse Landlord for any actual and reasonable costs
incurred by Landlord in connection with such picketing, demonstration or other
threat in order to protect the security of the Building, and Tenant shall
indemnify and hold Landlord harmless from and protect and defend Landlord
against any and all claims, demands, suits, liability, damage or loss and
against all costs and expenses, including reasonable attorneys' fees incurred in
connection therewith, arising out of or relating to any such picketing,
demonstration or other threat to the extent attributable to Tenant. Tenant
agrees not to employ any person, entity or contractor for any work in the
Premises (including moving Tenant's equipment and furnishings in, out or around
the Premises) whose presence may give rise to a labor or other disturbance in
the Building and, if necessary to prevent such a disturbance in a particular
situation, Landlord may require Tenant to employ union labor for the work.
12. ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfers. Tenant shall not, either
voluntarily or by operation of law, (i) assign or transfer this Lease or any
interest herein, (ii) sublet the Premises, or any part thereof, or (iii) enter
into a license agreement or other arrangement whereby the Premises, or any
portion thereof, are held or utilized by another party (each of the foregoing
defined herein as a "Transfer"), without the express prior written consent of
Landlord, which consent Landlord shall not unreasonably withhold. Any such act
(whether voluntary or involuntary, by operation of law or otherwise)
25.
without the consent of Landlord pursuant to the provisions of this Paragraph 12
shall, at Landlord's option, be void and/or constitute an Event of Default (as
defined in Paragraph 18(a)) under this Lease. Consent to any Transfer shall
neither relieve Tenant of the necessity of obtaining Landlord's consent to any
future Transfer nor relieve Tenant from any liability under this Lease.
By way of example and without limitation, the failure to satisfy any of
the following conditions or standards shall be deemed to constitute sufficient
grounds for Landlord to refuse to grant its consent to the proposed Transfer.
(1) The proposed Transferee must expressly assume all of the
provisions, covenants and conditions of this Lease on the part of
Tenant to be kept and performed as such provisions, covenants and
condition relate to that portion of the Premises to be occupied by the
proposed Transferee.
(2) The proposed Transferee must satisfy Landlord's then
current credit and other standards for tenants of the Building (taking
into account Tenant's continuing liability under this Lease and taking
into account whether or not Tenant is continuing in occupancy of a
material portion of the Premises) and, in Landlord's reasonable
opinion, have the financial strength and stability to perform all of
the obligations of the Tenant under this Lease (as they apply to the
transferred space) as and when they fall due.
(3) The proposed Transferee must be reasonably satisfactory to
Landlord as to business reputation.
(4) The proposed use of the Premises by the proposed
Transferee must be, in Landlord's reasonable opinion: (a) lawful; (b)
appropriate to the location and configuration of the Premises; (c)
unlikely to cause a material increase in insurance premiums for
insurance policies applicable to the Building; (d) absent any new
tenant improvements that Landlord would be entitled to disapprove
pursuant to Paragraph 8 hereof; (e) unlikely to create any materially
increased burden in the operation of the Building, or in the operation
of any of its facilities or equipment, unless Tenant agrees to pay the
increased cost therefor; and (f) unlikely to impair the dignity,
reputation or character of the Building.
(5) The proposed use of the Premises must not result in the
division of any full floor of the Premises into more than three (3)
separate leased premises or tenant spaces, and Tenant must tender to
Landlord as an additional security deposit the estimated amount to
restore the Premises to no more than two (2) separate leased premises
or tenant spaces if the proposed division constitutes three (3) or more
such spaces.
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(6) At the time of the proposed Transfer, an Event of Default
(as defined in Paragraph 18(a) below) shall not have occurred and be
continuing, and no event may have occurred that with notice, the
passage of time, or both, would become a material Event of Default.
(7) The proposed Transferee shall not be a governmental entity
or other entity that holds any exemption from the payment of ad valorem
or other taxes which would prohibit Landlord from collecting from such
Transferee any amounts otherwise payable under this Lease.
(8) The proposed Transferee shall not be a then present tenant
or affiliate or subsidiary of a then present tenant in the Building
unless there is no other suitable space available in the Building.
(9) Landlord shall not be negotiating with, and shall not have
at any time within the past thirty (30) days negotiated with, the
proposed Transferee for space in the Building (unless Landlord, in its
reasonable judgment, believes that it is unlikely that any further
discussions between Tenant and such proposed Transferee will lead to a
lease transaction).
(b) Landlord's Termination Right. Except in the event of a
Permitted Transfer (as defined below), Landlord shall have no obligation to
consent or consider granting its consent to any proposed Transfer unless Tenant
has first delivered to Landlord a written notice regarding such Transfer, which
notice shall include the base rent and other economic terms of the proposed
Transfer, the date upon which Tenant desires to effect such Transfer and all of
the other material terms of the proposed Transfer ("Tenant's Offer"). Landlord
shall have the right, by notice to Tenant within fifteen (15) days after receipt
of Tenant's Offer, to terminate this Lease (or, in the case of a sublease of
less than the entire Premises, terminate this Lease as to the portion of the
Premises to be sublet), which termination shall be effective as of the date on
which the intended assignment or sublease would have been effective if Landlord
had not exercised such termination right. If Landlord elects to terminate this
Lease in whole or in part, as the case may be, then from and after the date of
such termination, Landlord and Tenant each shall have no further obligation to
the other under this Lease with respect to the Premises (or the applicable
portion thereof) except for matters occurring or obligations arising hereunder
prior to the date of such termination. If Landlord does not respond to Tenant's
Offer within such fifteen (15) day period, Tenant may enter into such Transfer
with any bona fide independent third-party Transferee (as defined in Paragraph
12(c) below) within one hundred eighty (180) days of the end of such fifteen
(15) day period, so long as such Transfer is for the same base rent set forth in
Tenant's Offer and such Transfer otherwise contains terms not more than
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five percent (5%) more favorable economically to the Transferee than the terms
stated in Tenant's Offer, taking into account all rent concessions, tenant
improvements, and any other terms which have an economic impact on the Transfer;
provided, however, that the prior written approval of Landlord for such Transfer
must be obtained, and the other provisions of this Paragraph 12 must be complied
with, all in accordance with this Paragraph 12. Landlord's foregoing right of
termination shall continue throughout the entire term of this Lease.
Notwithstanding the foregoing, Landlord shall only have the right to terminate
the Lease (in whole or as to the portion of the Premises to be sublet, as the
case may be) pursuant to this Paragraph 12(b) if the proposed Transfer is for
one entire floor or more of the Premises and for at least ninety-five percent
(95%) of the remaining term of the Lease.
(c) Landlord's Approval Process. Except in the event of a
Permitted Transfer, Tenant shall, in each instance of a proposed Transfer, give
written notice to Landlord at least forty-five (45) days prior to the effective
date of any proposed Transfer, specifying in such notice (i) the nature of the
proposed Transfer, (ii) the portion of the Premises to be transferred, (iii) the
intended use of the transferred Premises, (iv) all economic terms of the
proposed Transfer, (v) the effective date thereof, (vi) the identity of the
transferee under the proposed Transfer (the "Transferee"), (vii) current
financial statements of the Transferee, and (viii) a description of the business
of the Transferee (collectively, "Tenant's Notice"). Tenant shall also promptly
furnish Landlord with any other information reasonably requested by Landlord
relating to the proposed Transfer or the proposed Transferee. Within twenty (20)
days after receipt by Landlord of Tenant's Notice (and any additional
information and data reasonably requested by Landlord within five (5) business
days of such notice), Landlord shall notify Tenant of its determination to
either (i) consent to the proposed Transfer, or (ii) refuse to consent to such
proposed Transfer. If Landlord does not respond to Tenant's Notice within such
twenty (20) day period, Tenant shall deliver to Landlord a second notice. If
Landlord does not approve or reasonably disapprove the proposed Transfer within
five (5) days after receipt of such second notice, Landlord shall be deemed to
have consented to the proposed Transfer.
(d) Consideration for Transfer. Except in the event of a
Permitted Transfer, fifty percent (50%) of all (i) consideration paid or payable
by Transferee to Tenant as consideration for any such Transfer, and (ii) rents
received in connection with the Transfer by Tenant from Transferee in excess of
the sum of the Rental payable by Tenant to Landlord under this Lease, plus the
value of any Alterations or any special improvements made to the Premises by
Tenant for such proposed Transferee (not to exceed the improvement allowance
that would be provided to a comparable tenant by Comparable Landlords), plus any
brokerage commissions (not to exceed prevailing market rates), reasonable
attorneys' fees and other professional fees
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in connection with the proposed Transfer, shall be paid by Tenant to Landlord
immediately upon receipt thereof by Tenant. If there is more than one sublease
under this Lease, the amounts (if any) to be paid by Tenant to Landlord pursuant
to the preceding sentence shall be separately calculated for each sublease and
amounts due Landlord with regard to any one sublease may not be offset against
rental and other consideration pertaining to or due under any other sublease.
Upon Landlord's request and after an Event of Default has occurred and is
continuing, Tenant shall assign to Landlord all amounts to be paid to Tenant by
any Transferee and shall direct such Transferee to pay the same directly to
Landlord.
If this Lease is assigned, whether or not in violation of the
terms of this Lease, Landlord may collect rent from the assignee. If the
Premises or any part thereof is sublet, Landlord shall, upon an Event of Default
by Tenant hereunder, collect rent from the subtenant. In either event, Landlord
may apply the amount collected from the assignee or subtenant to Tenant's
monetary obligations hereunder. Neither Landlord's collection of rent from a
Transferee nor any course of dealing between Landlord and any Transferee shall
constitute or be deemed to constitute Landlord's consent to any Transfer.
(e) Permitted Transfers. Notwithstanding anything to the
contrary in this Lease, Tenant may, without Landlord's prior written consent,
sublet any or all of the Premises or assign the Lease on such terms and
conditions as Tenant may elect to: (i) a subsidiary or corporation or other
entity controlling, controlled by or under common control with Tenant; (ii) a
successor corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; or (iii) a purchaser of substantially all
of Tenant's assets ((i), (ii) and (iii) above shall be referred to as a
"Permitted Transfer"), provided Landlord receives not less than ten (10) days'
prior written notice of such transfer. For the purpose of this Lease, any sale
or transfer of Tenant's capital stock, through any national market system or
public exchange, shall not be deemed an assignment, subletting, or any other
transfer of the Lease or the Premises.
(f) Documentation. Tenant agrees that any instrument by which
Tenant assigns this Lease or any interest therein or sublets or otherwise
Transfers all or any portion of the Premises shall expressly provide that the
Transferee may not further assign this Lease or any interest therein or sublet
the sublet space without Landlord's prior written consent (which consent shall
be subject to the provisions of this Paragraph 12), and that the Transferee will
comply with all of the provisions of this Lease and that Landlord may enforce
the Lease provisions directly against such Transferee. No permitted subletting
by Tenant shall be effective until there has been delivered to Landlord a
counterpart of the sublease in which the subtenant agrees to be and remain
jointly and severally liable
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with Tenant for the payment of rent pertaining to the sublet space and for the
performance of all of the terms and provisions of this Lease pertaining to the
sublet space; provided, however, that the subtenant shall be liable to Landlord
for rent only in the amount set forth in the sublease. No permitted assignment
shall be effective unless and until there has been delivered to Landlord a
counterpart of the assignment in which the assignee assumes all of Tenant's
obligations under this Lease arising on or after the date of the assignment. The
failure or refusal of a subtenant or assignee to execute any such instrument
shall not release or discharge the subtenant or assignee from its liability as
set forth above.
(g) Options Personal to Original Tenant. Except in the event
of a Permitted Transfer, if Landlord consents to a Transfer hereunder and this
Lease contains any renewal options, expansion options, rights of first refusal,
rights of first negotiation or any other rights or options pertaining to
additional space in the Building, such rights and/or options shall not run to
the Transferee, it being agreed by the parties hereto that any such rights and
options are personal to the original Tenant named herein and any transferee in
the event of a Permitted Transfer and may not be transferred.
(h) Encumbrance of Lease. Notwithstanding any provision of
this Lease to the contrary, Tenant shall not mortgage, encumber or hypothecate
this Lease or any interest herein without the prior written consent of Landlord,
which consent may be withheld in Landlord's sole and absolute discretion. Any
such act without the prior written consent of Landlord (whether voluntary or
involuntary, by operation of law or otherwise) shall, at Landlord's option, be
void and/or constitute an Event of Default under this Lease.
(i) No Merger. The voluntary or other surrender of this Lease
or of the Premises by Tenant or a mutual cancellation of this Lease shall not
work a merger, and at the option of Landlord any existing subleases may be
terminated or be deemed assigned to Landlord in which latter event the subleases
or subtenants shall become tenants of Landlord.
(j) Landlord's Costs. Except in the event of a Permitted
Transfer, Tenant shall pay to Landlord the amount of Landlord's cost of
processing each proposed Transfer (including, without limitation, attorneys' and
other professional fees, and the cost of Landlord's administrative, accounting
and clerical time; collectively "Processing Costs") not to exceed in the
aggregate three thousand dollars ($3,000.00) per Transfer, and the amount of all
direct and indirect expenses incurred by Landlord arising from the assignee or
sublessee taking occupancy of the subject space (including, without limitation,
costs of freight elevator operation for moving of furnishings and trade
fixtures, security service, janitorial and cleaning service, and rubbish removal
service).
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13. WAIVER; INDEMNIFICATION. Neither Landlord nor Landlord's agents,
nor any shareholder, constituent partner or other owner of Landlord or any agent
of Landlord, nor any contractor, officer, director or employee of any thereof
shall be liable to Tenant and Tenant waives all claims against Landlord and such
other persons for any injury to or death of any person or for loss of use of or
damage to or destruction of property in or about the Premises, the Storage Area
or the Building by or from any cause whatsoever, including without limitation,
earthquake or earth movement, gas, fire, oil, electricity or leakage from the
roof, walls, basement or other portion of the Premises, the Storage Area or the
Building, except to the extent caused by the gross negligence or willful
misconduct of Landlord, Landlord's agents, the shareholders, constituent
partners and/or other owners of Landlord or any agent of Landlord, and all
contractors, officers, directors and employees of any thereof (collectively,
"Indemnitees"). Tenant agrees to indemnify and hold the Indemnitees and each of
them, harmless from and to protect and defend each Indemnitee against any and
all claims, demands, suits, liability, damage or loss and against all costs and
expenses, including reasonable attorneys' fees incurred in connection therewith,
(a) arising out of any injury or death of any person or damage to or destruction
of property occurring in, on or about the Premises or the Storage Area, from any
cause whatsoever, except to the extent caused by the gross negligence or willful
misconduct of such Indemnitee, or (b) occurring in, on or about any facilities
(including without limitation elevators, stairways, passageways or hallways) the
use of which Tenant has in common with other tenants, or elsewhere in or about
the Building or in the vicinity of the Building, to the extent such claim,
injury or damage is caused by the act, neglect, default, or omission of any duty
by Tenant, its former or current agents, contractors, employees, invitees, or
subtenants or other persons in or about the Building by reason of Tenant's
occupancy of the Premises, or otherwise by any conduct of any of said persons in
or about the Premises, the Storage Area or the Real Property, or (c) arising
from any failure of Tenant to observe or perform any of its obligations
hereunder. If any action or proceeding is brought against any of the Indemnitees
by reason of any such claim or liability, Tenant, upon notice from Landlord,
covenants to resist and defend at Tenant's sole expense such action or
proceeding by counsel reasonably satisfactory to Landlord. The provisions of
this Paragraph shall survive the termination of this Lease with respect to any
claims or liability occurring prior to such termination. Notwithstanding
anything to the contrary in this Lease, Landlord shall not be indemnified for,
and shall indemnify, defend, protect and hold harmless Tenant from, all losses,
damages, liabilities, judgments, actions, claims, attorneys' fees, consultants'
fees, payments, costs and expenses to the extent arising from the gross
negligence or willful misconduct of the Indemnitees.
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14. INSURANCE.
(a) At Tenant's expense, Tenant shall procure, carry and
maintain in effect throughout the term of this Lease, in a form acceptable to
Landlord and with such insurance companies as are acceptable to Landlord (which
companies shall have a Best's rating of A-X or better), the following insurance
coverage:
(i) Commercial general liability insurance, on
an occurrence basis, with limits in an amount not less than $5,000,000 combined
single limit per occurrence, for claims or losses arising out of or resulting
from personal injury (including bodily injury), death and/or property damage
sustained or alleged to have been sustained by any person for any reason on the
Premises or in the Storage Area, for liability arising out of or resulting
from Tenant's covenant in Paragraph 13 to indemnify Landlord and all other
Indemnities, its agents and employees, and for contractual liability;
(ii) All Risk Replacement Cost insurance with an
agreed amount endorsement upon property of every
description and kind owned by Tenant and located in the Premises and for
Tenant's Extra Improvements and Alterations in an amount equal to 100% of the
full replacement value thereof; and
(iii) Workers' compensation insurance, in accordance
with applicable law.
(b) Not more often than every year and upon not less than
sixty (60) days' prior written notice, Landlord, in its reasonable discretion,
may require Tenant to increase the insurance limits set forth in Paragraphs
14(a)(i) and 14(a)(ii) above to amounts not in excess of insurance limits
generally required by Comparable Landlords for comparable tenancies.
(c) All policies of liability insurance described in Paragraph
14(a)(i) of this Lease so obtained and maintained shall be carried in the name
of Tenant, name Landlord and Landlord's designated agents as additional
insureds, and shall provide that the insurance policy so endorsed will be the
primary insurance providing coverage for Landlord, and contain a cross-liability
endorsement stating that the rights of insureds shall not be prejudiced by one
insured making a claim or commencing an action against another insured. Any
other liability insurance maintained by Landlord shall be excess and
non-contributing. At Landlord's election, such policies described in Paragraph
14(a)(i) shall name the holder of any Superior Interest or any other interested
party as an insured party under a standard mortgagee endorsement.
(d) All insurance policies required under this Lease shall
provide that the insurer shall not cancel, reduce, modify or fail to renew such
coverage without thirty (30) days' prior written notice to Landlord. Tenant
shall deliver certificates
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of all insurance required hereunder upon the commencement of the term of this
Lease. In the event Tenant does not comply with the requirements of this
Paragraph 14, Landlord may, at its option and at Tenant's expense, purchase such
insurance coverage to protect Landlord. The cost of such insurance shall be paid
to Landlord by Tenant, as additional rent, immediately upon demand therefor,
together with interest at the Interest Rate until paid.
(e) Notwithstanding anything to the contrary in this Lease,
the parties release each other, and their respective authorized representatives,
agents, employees, successors, assignees and subtenants, from any claims for
loss or damage that are caused by or result from perils insured under any
insurance policies carried by the parties in force at the time of any such
damage which is required to be insured against under this Lease, or which would
normally be covered by the standard form of "all risk" casualty insurance,
without regard to the negligence or willful misconduct of the entity so
released. Each party shall cause each insurance policy obtained by it to provide
that the insurer waives all right of recovery by way of subrogation against
either party in connection with any loss or damage covered by the policy.
Neither party shall be liable to the other for any loss or damage covered by the
insured risks under any insurance policy maintained by either party or required
by this Lease.
15. PROTECTION OF LENDERS.
(a) This Lease shall be subject and subordinate at all times
to all ground or underlying leases which may now or hereafter exist affecting
the Building or the Land, or both, and to the lien of any mortgage or deed of
trust in any amount or amounts whatsoever now or hereafter placed on or against
the Building or the Land, or both, or on or against Landlord's interest or
estate therein (such mortgages, deeds of trust and leases are referred to
herein, collectively, as "Superior Interests"), all without the necessity of any
further instrument executed or delivered by or on the part of Tenant for the
purpose of effectuating such subordination. Notwithstanding the foregoing,
Tenant covenants and agrees to execute and deliver, upon demand, such further
reasonable instruments evidencing such subordination of this Lease to any such
Superior Interest as may be required by Landlord provided the Holder of such
Superior Interest agrees in writing (i) that this Lease shall not be terminated
so long as an Event of Default has not occurred and is not continuing and (ii)
to recognize all of Tenant's rights, interests and options under this Lease.
Landlord shall make reasonable efforts to provide Tenant with a non-disturbance
agreement executed by the holder of any such Superior Interest on or prior to
the Commencement Date.
(b) Notwithstanding the foregoing, in the event of a
foreclosure of any such mortgage or deed of trust or of any
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other action or proceeding for the enforcement thereof, or of any sale
thereunder, this Lease shall not be terminated or extinguished, nor shall the
rights and possession of Tenant hereunder be disturbed, if no Event of Default
then exists under this Lease, and Tenant shall attorn to the person who acquires
Landlord's interest hereunder through any such mortgage or deed of trust.
(c) Within ten (10) days after Landlord's written request,
Tenant shall deliver to Landlord, or to any actual or prospective holder of a
Superior Interest ("Holder") that Landlord designates, such publicly available
financial statements as are reasonably required by such Holder to verify the
financial condition of Tenant (or any assignee, subtenant or guarantor of
Tenant). Tenant represents and warrants to Landlord and such Holder that each
financial statement delivered by Tenant shall be accurate in all material
respects as of the date of such statement. All financial statements shall be
confidential and used only for the purposes stated herein.
(d) If Landlord is in default, Tenant will accept cure of any
default by any Holder whose name and address shall have been furnished to Tenant
in writing. Tenant may not exercise any rights or remedies for Landlord's
default unless Tenant gives notice thereof to each such Holder and the default
is not cured within thirty (30) days thereafter or such greater time as may be
reasonably necessary to cure such default. A default which cannot reasonably be
cured within said 30-day period shall be deemed cured within said period if work
necessary to cure the default is commenced within such time and proceeds
diligently thereafter until the default is cured.
(e) If any prospective Holder should require, as a condition
of any Superior Interest, a modification of the provisions of this Lease, Tenant
shall approve and execute any such modifications promptly after request,
provided no such modification shall relate to the Rental payable hereunder,
Tenant's parking rights hereunder, the length of the term hereof or Tenant's
Option to Extend such term, or otherwise materially alter the rights or
obligations of Landlord or Tenant hereunder.
16. ENTRY BY LANDLORD.
(a) Landlord reserves, and shall at all times have, upon
reasonable written notice to Tenant of not less than twenty-four (24) hours
(except no notice shall be required in the event of an emergency), the right to
enter the Premises to inspect them; to supply janitorial service and any other
service to be provided by Landlord hereunder; to submit the Premises to
prospective purchasers or mortgagees at any time, or to prospective tenants in
the last twelve (12) months of the Lease term; to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any portion
of the Building as permitted or provided hereunder, all without abatement of
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Rental; and may erect scaffolding and other necessary structures in or through
the Premises where reasonably required by the character of the work to be
performed; provided, however, that any such entrance or work shall not
unreasonably interfere with Tenant's use of or access to the Premises. If such
entry is made as aforesaid, Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned by
such entry. For each of the foregoing purposes, Landlord shall at all times have
and retain a key and/or other access device with which to unlock all of the
doors in, on and about the Premises (excluding Tenant's vaults, safes and
similar areas designated in writing by Tenant in advance and approved reasonably
by Landlord); and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained by Landlord by any
of said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises, or
any portion thereof.
(b) Landlord shall also have the right at any time to change
the arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Building, and
to change the name, number or designation by which the Building is commonly
known, and none of the foregoing shall be deemed an actual or constructive
eviction of Tenant, nor shall it entitle Tenant to any reduction of Rental
hereunder or result in any liability of Landlord to Tenant. Landlord shall
consult with Tenant to minimize any security risks to Tenant resulting from such
changes. Notwithstanding the foregoing changes, Tenant shall at all times during
the term of this Lease continue to have reasonable access to the Premises.
17. [Intentionally Omitted]
18. DEFAULT AND REMEDIES.
(a) The occurrence of any one or more of the following events
(each an "Event of Default") shall constitute a breach of this Lease by Tenant:
(i) Tenant fails to pay any Basic Monthly Rental,
Monthly Storage Rental or additional monthly rent under Paragraph 4(b) hereof
as and when such rent becomes due and payable and such failure continues for
more than five (5) business days after Landlord gives written notice thereof to
Tenant; provided, however, that after the second such failure in a calendar
year, only the passage of time, but no further notice (except any notice
required by statute), shall be required to establish an Event of Default in the
same calendar year; or
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(ii) Tenant fails to pay any additional rent or other
amount of money or charge payable by Tenant
hereunder as and when such additional rent or amount or charge becomes due and
payable and such failure continues for more than twenty (20) days after Landlord
gives written notice thereof to Tenant; provided, however, that after the second
such failure in a calendar year, only the passage of time, but no further notice
(except any notice required by statute), shall be required to establish an Event
of Default in the same calendar year; or
(iii) Tenant fails to perform or breaches any other
agreement or covenant of this Lease to be performed or
observed by Tenant as and when performance or observance is due and such failure
or breach continues for more than twenty (20) days after Landlord gives written
notice thereof to Tenant; provided, however, that if, by the nature of such
agreement or covenant, such failure or breach cannot reasonably be cured within
such period of twenty (20) days, an Event of Default shall not exist as long as
Tenant commences with due diligence and dispatch the curing of such failure or
breach within such period of twenty (20) days and, having so commenced,
thereafter prosecutes with diligence and dispatch and completes the curing of
such failure or breach within a reasonable time; or
(iv) Tenant (A) is generally not paying its debts as
they become due, (B) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy, insolvency or other debtors' relief law of any
jurisdiction, (C) makes an assignment for the benefit of its creditors, (D)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers of Tenant or of any substantial part of Tenant's property,
or (E) takes action for the purpose of any of the foregoing; or
(v) Without consent by Tenant, a court or government
authority enters an order, and such order is not
vacated within thirty (30) days, (A) appointing a custodian, receiver, trustee
or other officer with similar powers with respect to Tenant or with respect to
any substantial part of Tenant's property, or (B) constituting an order for
relief or approving a petition for relief or reorganization or arrangement or
any other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction, or (C)
ordering the dissolution, winding-up or liquidation of Tenant; or
(vi) This Lease or any estate of Tenant hereunder is
levied upon under any attachment or execution and such attachment or execution
is not vacated within thirty (30) days; or
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(vii) Tenant abandons the Premises and fails to pay
the Rental due.
(b) If an Event of Default occurs, Landlord shall have the
right at any time to give a written termination notice to Tenant and, on the
date specified in such notice, Tenant's right to possession shall terminate and
this Lease shall terminate. Upon such termination, Landlord shall have the right
to recover from Tenant:
(i) The worth at the time of award of all unpaid
rent which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by
which all unpaid rent which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by
which all unpaid rent for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; and
(iv) All other amounts necessary to compensate
Landlord for all the detriment proximately caused by
Tenant's failure to perform all of Tenant's obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in clauses (i) and
(ii) above shall be computed by allowing interest at the maximum annual interest
rate allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at the time of termination or,
if there is no such maximum annual interest rate, at the rate of eighteen
percent (18%) per annum. The "worth at the time of award" of the amount referred
to in clause (iii) above shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). For the purpose of determining unpaid rent under clauses
(i), (ii) and (iii) above, the rent reserved in this Lease shall be deemed to be
the total rent payable by Tenant under Articles 3 and 4 hereof.
(c) Even though Tenant has breached this Lease, this Lease
shall continue in effect for so long as Landlord does not terminate Tenant's
right to possession, and Landlord shall have all of its rights and remedies,
including the right, pursuant to California Civil Code Section 1951.4, to
recover all rent as it becomes due under this Lease. Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a receiver
upon initiative of Landlord to protect Landlord's interest under this Lease
shall not constitute a termination of
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Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.
(d) The remedies provided for in this Lease are in addition to
all other remedies available to Landlord at law or in equity by statute or
otherwise.
19. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises (including all Building Standard
Improvements) are partially destroyed or damaged by fire or other casualty,
Landlord shall, subject to Paragraphs 19(b), 19(c), 19(d) and 19(e) below,
promptly repair such damage if, in Landlord's reasonable judgment based upon the
written determination of a California licensed contractor, such repair can be
completed within one hundred eighty (180) days under the laws and regulations of
the state, federal, county and municipal authorities having jurisdiction, and
this Lease shall remain in full force and effect, provided that if there shall
be damage to the Premises from any such cause and such damage is not the result
of the gross negligence or willful misconduct of Tenant, its agents, employees,
contractors or invitees, Tenant shall be entitled to a reduction of the Rental
(the provisions of Paragraph 3(a) hereof notwithstanding) while such repair is
being made in the proportion that the area of the Premises rendered untenantable
by such damage bears to the total area of the Premises. Tenant's right to a
reduction of Rental under this Paragraph 19 shall be Tenant's sole remedy in
connection with any such damage.
(b) If such repairs cannot, in Landlord's reasonable judgment
based upon the written determination of a California licensed contractor, be
completed within one hundred eighty (180) days, or if such damage occurs during
the last six (6) months of the term of this Lease, Landlord shall have the
option either (i) to repair such damage, this Lease continuing in full force and
effect, but with the Rental proportionately reduced (subject to the conditions
set forth in Paragraph 19(a) above), or (ii) to give notice to Tenant at any
time within thirty (30) days after the occurrence of such damage terminating
this Lease as of a date specified in such notice, which shall not be less than
thirty (30) nor more than sixty (60) days after the giving of such notice. If
such notice of termination is so given, the Lease and all interest of Tenant in
the Premises shall terminate on the date specified in such notice, and the
Rental reduced (subject to the conditions set forth in Paragraph 19(a) above) in
proportion to the area of the Premises rendered untenantable by the damage,
shall be paid up to the date of such termination, Landlord hereby agreeing to
refund to Tenant any Rental theretofore paid for any period of time subsequent
to the termination date.
(c) If the Building is damaged by fire or other casualty to
the extent that the repair cost would exceed thirty-
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three percent (33%) or more of its replacement value, or if more than
thirty-three percent (33%) of the rentable area of the Building is affected by
fire or other casualty and repairs to the Building cannot, in Landlord's
reasonable judgment based upon the advice of a licensed contractor, be completed
within one hundred eighty (180) days, or if insurance proceeds sufficient to
complete the repairs are not available due to exercise of rights of a Holder to
collect such proceeds, then in any such case, whether the Premises or the
Storage Area are damaged or not, Landlord shall have the right, at its option,
to be reasonably exercised, to terminate this Lease by giving Tenant notice
thereof within thirty (30) days of such casualty specifying the date of
termination which shall not be less than thirty (30) nor more than sixty (60)
days after the giving of such notice, and to the extent the Premises are
damaged, Tenant shall be entitled to reduction of the Rental as set forth in
Paragraph 19(a) above.
(d) If the Premises are damaged by fire or other casualty not
resulting in whole or in part from the gross negligence or willful misconduct of
Tenant or its employees, agents, contractors or subtenants and the repair to the
Premises cannot, in Landlord's reasonable judgment (based upon the written
determination of a California licensed contractor), be completed within one
hundred eighty (180) days, assuming the availability of labor and materials,
Tenant, at its option, may terminate this Lease. Tenant's notice to Landlord of
its election to terminate the Lease must be delivered to Landlord within thirty
(30) days of the date of Landlord's notice of the estimated time to complete
repairs in accordance with this Paragraph 19, and the termination shall be as of
a date specified in such Tenant's notice which shall be no less than thirty (30)
nor more than sixty (60) days after the giving of such notice. In the event of a
termination of the Lease by Tenant under this Paragraph 19(d), the Rental shall
be reduced in the same manner as provided under Paragraph 19(b) above, provided
Tenant does not elect to terminate this Lease as permitted in this Paragraph 19.
(e) If the Storage Area is damaged by fire or other casualty
not resulting in whole or in part from the negligence or willful misconduct of
Tenant or its employees, agents, contractors or subtenants and the repair to the
Storage Area cannot, in Landlord's judgment, be completed within thirty (30)
days, assuming the availability of labor and materials, this Lease shall
terminate as to the Storage Area only.
(f) Notwithstanding any of the provisions of this Lease,
Landlord shall in no event be required to repair any injury or damage by fire or
other cause whatsoever to, or to make any repairs or replacements of, any
panelings, decorations, partitions, railings, ceilings, floor coverings, trade
or office fixtures or any other property of, or improvements (including Tenant's
Extra Improvements and any Alterations) installed on
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the Premises or on the Storage Area by or at the election of Tenant. Tenant
hereby agrees to promptly repair any damage to Tenant's Extra Improvements and
any Alterations at its sole cost and expense in the event that Landlord is
required to, or elects to, repair the remainder of the Premises pursuant to
Paragraphs 19(a) and 19(b) above provided Tenant does not elect to terminate
this Lease as permitted in this Paragraph 19.
(g) Tenant hereby waives the provisions of subsection 2 of
Section 1932, subsection 4 of Section 1933, and Sections 1941 and 1942 of the
California Civil Code.
20. EMINENT DOMAIN.
(a) If all or part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title or the right to possession vests in the
condemnor.
(b) If (i) a part of the Premises shall be taken by any public
or quasi-public authority under the power of eminent domain or conveyance in
lieu thereof; and (ii) Tenant is reasonably able to continue the operation of
Tenant's business in that portion of the Premises remaining; and (iii) Landlord
elects to restore the Premises to an architectural whole, then this Lease shall
remain in effect as to said portion of the Premises remaining, and the Basic
Monthly Rental payable from the date of the taking shall be reduced in the same
proportion as the area of the Premises taken bears to the total area of the
Premises. If, after a partial taking, Tenant is not reasonably able to continue
the operation of its business in the Premises or Landlord elects not to restore
the Premises as hereinabove described, this Lease may be terminated by either
Landlord or Tenant by giving written notice to the other party within thirty
(30) days of the date of the taking. Such notice shall specify the date of
termination which shall be not less than thirty (30) nor more than sixty (60)
days after the date of said notice.
(c) If a portion of the Building is taken, whether any portion
of the Premises is taken or not, and Landlord reasonably determines that it is
not economically feasible to continue operating the portion of the Building
remaining, then Landlord shall have the option for a period of thirty (30) days
after such determination to terminate this Lease. If Landlord determines that it
is economically feasible to continue operating the portion of the Building
remaining after such taking, then this Lease shall remain in effect, with
Landlord, at Landlord's cost, restoring the Building to an architectural whole.
(d) Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever
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which may be paid or made in connection with such taking or conveyance, and
Tenant shall have no claim against Landlord or otherwise for the value of any
unexpired term of this Lease. Tenant hereby assigns any such claim to the
Landlord. Notwithstanding the foregoing, Tenant shall have the right to make a
claim directly to the entity expressing the power of eminent domain for moving
expenses and for loss or damage to Tenant's Extra Improvements, Personal
Property, trade fixtures, equipment and movable furniture.
(e) Tenant hereby waives Sections 1265.110 through 1265.160
of the California Code of Civil Procedure.
21. HOLDING OVER. Any holding over after the expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall be construed to be a tenancy from month to month at
the Basic Monthly Rental and the Monthly Storage Rental in effect on the date of
such expiration or termination (subject to adjustment as provided in Paragraph
3(c) hereof) on the terms, covenants and conditions herein specified so far as
applicable. Any holding over after the expiration or other termination of the
term of this Lease without the written consent of Landlord shall be construed to
be a tenancy at sufferance on all the terms set forth herein, except that the
Basic Monthly Rental and the Monthly Storage Rental shall be an amount equal to
one hundred fifty percent (150%) of the Basic Monthly Rental and the Monthly
Storage Rental payable by Tenant immediately prior to such holding over.
Acceptance by Landlord of Rental after the expiration or termination of this
Lease shall not constitute a consent by Landlord to any such tenancy from month
to month or result in any other tenancy or any renewal of the term hereof. The
provisions of this Paragraph are in addition to, and do not affect, Landlord's
right to re-entry or other rights hereunder or provided by law.
22. MISCELLANEOUS.
(a) Limitation of Landlord's Liability. Any liability of
Landlord (including without limitation Landlord's partners, shareholders,
affiliates, agents, and employees) to Tenant under this Lease shall be limited
to the equity interest of Landlord in the Real Property and Tenant agrees to
look solely to such interest for the recovery of any judgment, it being intended
that Landlord and such other persons shall not be personally liable for any
deficiency or judgment. Notwithstanding any other provision of this Lease,
Landlord shall not be liable for any consequential damages, nor shall Landlord
be liable for loss of or damage to artwork, currency, jewelry, bullion, unique
or valuable documents, securities or other valuables, or for other property not
in the nature of ordinary fixtures, furnishings and equipment used in general
administrative and executive office activities and functions. Wherever in this
Lease Tenant (a) releases Landlord from any claim or
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liability, (b) waives or limits any right of Tenant to assert any claim against
Landlord or to seek recourse against any property of Landlord or (c) agrees to
indemnify Landlord against any matters, the relevant release, waiver, limitation
or indemnity shall run in favor of and apply to Landlord, its agents, the
constituent shareholders, partners or other owners of Landlord or its agents,
and the directors, officers, and employees of Landlord and its agents and each
such constituent shareholder, partner or other owner.
(b) Sale by Landlord. In the event of a sale or conveyance of
the Building by any owner of the reversion then constituting Landlord, the
transferor shall thereby be released from any further liability upon any of the
terms, covenants or conditions (express or implied) herein contained in favor of
Tenant after the effective date of said transfer (provided, however, that
Landlord shall remain liable under the Lease for any occurrences, events, or
breaches under the Lease occurring prior to the date of said transfer), and in
such event, insofar as such transferor is concerned, Tenant agrees to look
solely to the successor in interest of such transferor in and to the Building
and this Lease. Such successor in interest shall automatically be deemed to
succeed to all the rights, responsibilities and obligations of Landlord under
the Lease. Tenant agrees to attorn to the successor in interest of such
transferor. If Tenant provides Landlord with any security for Tenant's
performance of its obligations hereunder, and Landlord transfers, or provides a
credit with respect to, such security to the grantee or transferee of Landlord's
interest in the Real Property, Landlord shall be released from any further
responsibility or liability for such security.
(c) Estoppel Letter. Tenant shall, at any time and from time
to time within ten (10) days following request from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing, (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified is
in full force and effect), (ii) certifying that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, and that
Tenant has no defenses to or offsets against its obligations under this Lease,
or specifying such defaults, defenses or offsets if any are claimed, (iii)
certifying the date that Tenant entered into occupancy of the Premises and the
Storage Area and that Tenant is open for business in the Premises, (iv)
certifying the amount of the Basic Monthly Rental, the Monthly Storage Rental
and the Rental payable under Paragraph 4(b) and the date to which Rental is paid
in advance, if any, and certifying that Tenant is entitled to no rent abatement
or other economic concessions not specified in the Lease, (v) certifying the
amount of the Deposit, if any, (vi) certifying that all Improvements to be
constructed in the Premises by Landlord are completed (or specifying any
obligations of Landlord respecting Improvements),
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and (vii) certifying such other matters relating to this Lease, the Premises
and/or the Storage Area as may be reasonably requested by a lender making a loan
to Landlord or a purchaser of the Premises, the Building, the Real Property or
any interest therein from Landlord. Any such statement may be relied upon by,
and shall upon Landlord's request be addressed to, any prospective purchaser or
encumbrancer of all or any portion of the Real Property or any interest therein.
Tenant shall, within ten (10) days following request of Landlord, deliver such
other documents including Tenant's publicly available financial statements as
are reasonably requested in connection with the sale of, or loan to be secured
by, the Real Property or any part thereof or interest therein. Tenant's failure
to deliver said statement in the time required shall be conclusive upon Tenant
that: (i) the Lease is in full force and effect, without modification except as
may be represented by Landlord, (ii) there are no uncured defaults in Landlord's
performance and Tenant has no right of offset, counterclaim or deduction against
Rental under the Lease and (iii) no more than one month's Basic Monthly Rental
and Monthly Storage Rental has been paid in advance.
(d) Financial Statements. On or before April 1 of each year,
Tenant shall deliver to Landlord Tenant's publicly available financial
statements ("Financial Statements") for the fiscal year of Tenant ended on the
previous December 31, which Financial Statements shall include a combined
balance sheet of Tenant and its combined subsidiaries as at the end of such
fiscal year, a combined statement of operations of Tenant and its combined
subsidiaries for such fiscal year, and a certificate of Tenant's auditor (or, if
audited Financial Statements are not available, then a certificate of Tenant's
Chief Financial Officer) to the effect that such Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition and operations
of Tenant and its combined subsidiaries for and as at the end of such fiscal
year.
(e) Right of Landlord To Perform. All terms and covenants of
this Lease to be performed or observed by Tenant shall be performed or observed
by Tenant at Tenant's expense and without any reduction of Rental. If Tenant
fails to pay any Rental hereunder or fails to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
fifteen (15) days (or such shorter period as may be reasonable under emergency
circumstances) after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may make
any such payment or perform any such other term or covenant on Tenant's part to
be performed but shall not be obligated to do so. All sums so paid by Landlord
and all necessary costs of such performance by Landlord, together with interest
thereon at the Interest Rate from the date of such payment or performance by
Landlord, shall be paid (and Tenant covenants to make such
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payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of non-payment thereof by Tenant as in the case of failure by Tenant in
the payment of Rental hereunder.
(f) Rules and Regulations. Tenant agrees to faithfully observe
and to comply with the Building Rules and Regulations attached hereto as Exhibit
B and incorporated herein by this reference, and all modifications of and
additions thereto from time to time put into effect by Landlord which are
applicable to all tenants of the Building and of which Tenant shall have notice
(provided, however, that any modifications of or additions to the Building Rules
and Regulations shall not, in any material respect, increase Tenant's
obligations or decrease Tenant's rights under the Lease). Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant of
the Building of any of said Building Rules and Regulations. In the event any of
the Building Rules and Regulations conflict with any express provision of this
Lease, the provisions of this Lease shall govern.
(g) Attorneys' Fees. In case any suit or other proceeding
shall be brought for an unlawful detainer of the Premises or for the recovery of
any Rental due under the provisions of this Lease or because of the failure of
performance or observance of any other term or covenant herein contained on the
part of Landlord or Tenant, the unsuccessful party in such suit or proceeding
shall pay to the prevailing party therein reasonable attorneys' fees and costs
which shall include fees and costs of any appeal, all as fixed by the Court. If
Landlord or Tenant should be named as a defendant in any suit brought against
the other in connection with Tenant's occupancy of the Premises under this
Lease, the party defendant primarily responsible for the bringing of such suit
shall pay to the other party its costs and expenses incurred in such suit and
reasonable attorneys' fees.
(h) Waiver of Jury Trial. If any action or proceeding between
Landlord and Tenant to enforce the provisions of this Lease (including an action
or proceeding between Landlord and the trustee or debtor in possession while
Tenant is a debtor in a proceeding under any bankruptcy law) proceeds to trial,
Landlord and Tenant hereby waive their respective rights to a jury in such
trial.
(i) Waiver. The failure of Landlord to object to or to assert
any remedy by reason of Tenant's failure to perform or observe any covenant or
term hereof or its failure to assert any rights by reason of the happening or
non-happening of any condition hereof shall not be deemed a waiver of its right
to assert and enforce any remedy it may have by reason of such failure on the
part of Tenant or the happening or non-happening of such condition or a waiver
of its rights to enforce any of
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its rights by reason of any subsequent failure of Tenant to perform or observe
the same or any other term or covenant or by reason of the subsequent happening
or non-happening of the same or any other condition. No custom or practice which
may develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of Landlord to insist upon
performance and observance by Tenant in strict accordance with the terms hereof.
The acceptance of Rental hereunder by Landlord shall not be deemed to be a
waiver of any preceding failure of Tenant to perform or observe any term or
covenant of this Lease, other than the failure of Tenant to pay the particular
Rental so accepted, irrespective of any knowledge on the part of Landlord of
such preceding failure at the time of acceptance of such Rental.
(j) Light, Air and View. Tenant agrees that no diminution or
shutting off of light, air or view by any structure which may be erected
(whether or not by Landlord) on property adjacent to the Building shall in any
way affect this Lease, entitle Tenant to any reduction of Rental hereunder or
result in any liability of Landlord to Tenant.
(k) Notices. All notices, demands, requests, advices or
designations ("Notices") which may be or are required to be given by either
party to the other hereunder shall be in writing. All Notices by Landlord to
Tenant shall be sufficiently given, made or delivered if personally served on
Tenant at the Premises, or if sent by United States certified or registered
mail, postage prepaid, addressed to Tenant at Tenant's address for notices as
set forth in the Summary of Lease Terms. All Notices by Tenant to Landlord shall
be sufficiently given, made or delivered if personally served on Landlord, or
sent by United States certified or registered mail, postage prepaid, addressed
to Landlord at Landlord's address for notices specified in Paragraph B of the
Summary of Lease Terms. Each Notice shall be deemed received or given on the
date of the personal service or three (3) days after the mailing thereof, in the
manner herein provided, as the case may be.
(l) Name. Tenant agrees that it shall not, without first
obtaining the written consent of Landlord (which consent may be withheld in
Landlord's sole and absolute discretion): (i) use the name of the Building for
any purpose other than as the address of the business conducted by Tenant in the
Premises, or (ii) use for any purpose any image of, rendering of, or design
based on, the exterior appearance or profile of the Building.
(m) Governing Law; Severability. This Lease shall in all
respects be governed by and construed in accordance with the laws of California.
If any provision of this Lease shall be invalid, unenforceable or ineffective
for any reason whatsoever, all other provisions hereof shall be and remain in
effect.
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(n) Definitions and Paragraph Headings; Successors. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The term "Landlord" or any pronoun used in place
thereof includes the plural as well as the singular and the successors and
assigns of Landlord. The term "Tenant" or any pronoun used in place thereof
includes the plural as well as the singular and individuals, firms,
associations, partnerships and corporations, and their and each of their
respective heirs, executors, administrators, successors and permitted assigns,
according to the context hereof. The provisions of this Lease shall inure to the
benefit of and bind Landlord and Tenant and their respective heirs, executors,
administrators, successors and permitted assigns. The term "person" includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations. Words used in any gender include other genders.
If there be more than one Tenant the obligations of Tenant hereunder are joint
and several. The paragraph headings of this Lease are for convenience of
reference only and shall have no effect upon the construction or interpretation
of any provision hereof.
(o) Time. Time is of the essence of this Lease with respect to
the payment of Rental and the performance of all obligations.
(p) Examination of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for a lease, and this instrument is not effective as a lease or otherwise
until its execution and delivery by both Landlord and Tenant.
(q) Brokerage. Tenant covenants and represents that it has
negotiated this Lease directly with the Tenant's Broker(s) designated on the
Summary of Lease Terms and has not acted by implication to authorize, nor has
authorized, any other real estate broker or salesman to act for it in these
negotiations. Tenant agrees to protect, defend, indemnify and hold Landlord
harmless from any and all claims, loss, cost, damage and/or expense (including,
without limitation, attorneys' fees and court costs) by any other real estate
broker or salesperson or other entity or party other than the Landlord's
Broker(s) and Tenant's Broker(s) listed on the Summary of Lease Terms for a
commission or finder's fee as a result of Tenant's entering into this Lease.
(r) Directory Board. Landlord agrees to list Tenant's name on
the directory board in the lobby of the Building at Landlord's cost and expense;
provided, however, any change to the initial listing or any additional listings
shall be at Tenant's cost and expense. Landlord's acceptance of any name for
listing on the directory board shall in no event be, or be deemed to be, nor
will it substitute for, Landlord's consent,
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as required by this Lease, to any sublease, assignment, or other occupancy of
the Premises.
(s) Authority. If Tenant is a corporation (or other business
organization), Tenant represents and warrants to Landlord that (a) Tenant is
duly incorporated (or organized) and validly existing under the laws of its
state of incorporation (or organization), (b) Tenant is qualified to do business
in California, (c) Tenant has full right, power and authority to enter into this
Lease and to perform all of Tenant's obligations hereunder, and (d) the
execution, delivery and performance of this Lease has been duly authorized by
Tenant and each person signing this Lease on behalf of the Tenant is duly and
validly authorized to do so. Concurrently with signing this Lease, Tenant shall
deliver to Landlord a true and correct copy of resolutions duly adopted by the
board of directors or constituent partners or members of Tenant, certified by
the secretary of Tenant to be true and correct, unmodified and in full force,
which authorize and approve this Lease and authorize each person signing this
Lease on behalf of Tenant to do so.
(t) Amendments. This Lease may not be amended or modified in
any respect whatsoever except by an instrument in writing signed by Landlord and
Tenant.
(u) Exhibits and Addenda; Entire Agreement. The Exhibits and
Addenda referenced in the Summary of Lease Terms are a part of this Lease and
are incorporated herein by this reference. In the event of any discrepancy
between the Lease and any such Exhibit or Addendum, the Exhibit or Addendum
shall control. This Lease is the entire and integrated agreement between
Landlord and Tenant with respect to the subject matter of this Lease, the
Premises and the Building. There are no oral agreements between Landlord and
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, offers, agreements and
understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease, the Premises or the Building, including, from and after the Commencement
Date, the lease agreement dated April 14, 1992, with respect to a portion of the
4th, the 5th and the 6th floors of the Building between Landlord's predecessor
in interest as "Lessor" and Tenant as "Lessee," and the lease agreement dated
December 6, 1989, with respect to the 2nd, the 3rd and a portion of the 4th
floors of the Building between Landlord's predecessor in interest as "Lessor"
and Tenant's predecessor in interest as "Lessee," both agreements as amended and
assigned (collectively, the "Existing Leases"). There are no representations
between Landlord and Tenant or between any real estate broker and Tenant other
than those expressly set forth in this Lease and all reliance with respect to
any representations is solely upon representations expressly set forth in this
Lease.
47.
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23. OPTION TO EXTEND. Landlord hereby grants to Tenant one (1) option
(the "Option") to extend the term of the Lease for an additional period of five
(5) years (the "Option Term), all on the following terms and conditions:
(a) The Option must be exercised, if at all, by written notice
irrevocably exercising the Option ("Option Notice") delivered by Tenant to
Landlord not earlier than twelve (12) months nor later than six (6) months prior
to the Expiration Date. Further, the Option shall not be deemed to be properly
exercised if, as of the date of the Option Notice or at the Expiration Date (i)
an Event of Default has occurred and is continuing, (ii) Tenant has assigned
this Lease or its interest therein to any person or entity other than pursuant
to a Permitted Transfer, or (iii) Tenant is occupying less than one hundred
percent (100%) of the square footage of the Premises. Provided Tenant has
properly and timely exercised the Option, the term of this Lease shall be
extended for the period of the Option Term and all terms, covenants and
conditions of this Lease shall remain unmodified and in full force and effect,
except that the Basic Monthly Rental and Monthly Storage Rental shall be
modified as set forth in Paragraph 23(b) below.
(b) The Basic Monthly Rental and the Monthly Storage Rental
per rentable square foot ("RSF") payable for the Option Term shall be equal to
the greater of (i) the then-current net rental rate per RSF (as further defined
below, "FMRR") being agreed to in new leases by the Landlord or the owners
("Comparable Owners") of office buildings in the South of Market/MultiMedia
Gulch area of San Francisco which are comparable in quality, location and
prestige to the Building (the "Comparable Buildings") and tenants leasing space
in the Building or the Comparable Buildings, or (ii) the Basic Monthly Rental
and Monthly Storage Rental per RSF in effect during the last month prior to the
Expiration Date. As used herein, "FMRR" shall mean the net rental rate per RSF
for which Landlord and Comparable Owners are entering into new leases within the
time period of eighteen (18) to twelve (12) months prior to the Expiration Date
("Market Determination Period"), with new or existing tenants leasing from
Landlord and/or Comparable Owners' office space in the Building and/or the
Comparable Owners which space is comparable to the Premises and the Storage Area
in views and other material factors ("Comparative Transactions"). Landlord shall
provide its determination of the FMRR to Tenant within twenty (20) days after
Landlord receives the Option Notice. Tenant shall have fifteen (15) days
("Tenant's Review Period") after receipt of Landlord's notice of the FMRR within
which to accept such FMRR or to reasonably object thereto in writing. In the
event Tenant objects to the FMRR submitted by Landlord, Landlord and Tenant
shall attempt to agree upon such FMRR. If Landlord and Tenant fail to reach
agreement on such FMRR within fifteen (15) days following Tenant's Review Period
(the "Outside Agreement Date"), then each party shall place in a separate sealed
envelope its final proposal as to FMRR and such
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determination shall be submitted to arbitration in accordance with Paragraph
23(c) below.
(c) (1) Landlord and Tenant shall meet with each other within
five (5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence. If Landlord and
Tenant do not mutually agree in writing upon the FMRR within five (5) business
days of the exchange and opening of envelopes, then, within ten (10) business
days of the exchange and opening of envelopes, Landlord and Tenant shall agree
upon and jointly appoint one arbitrator who shall be by profession a real estate
appraiser or broker who shall have been active over the five (5) year period
ending on the date of such appointment in the leasing of comparable commercial
properties in the vicinity of the Building. Neither Landlord nor Tenant shall
consult with such broker or appraiser as to his or her opinion as to FMRR prior
to the appointment. The determination of the arbitrator shall be limited solely
to the issue of whether Landlord's or Tenant's submitted FMRR for the Premises
is the closer to the actual net rental rate per RSF for new leases within the
Market Determination Period for Comparative Transactions. Such arbitrator may
hold such hearings and require such briefs as the arbitrator, in his or her sole
discretion, determines is necessary. In addition, Landlord or Tenant may submit
to the arbitrator with a copy to the other party within five (5) business days
after the appointment of the arbitrator any data and additional information that
such party deems relevant to the determination by the arbitrator ("Data") and
the other party may submit a reply in writing within five (5) business days
after receipt of such Data.
(2) The arbitrator shall, within thirty (30) days of his
or her appointment, reach a decision as to whether the parties shall use
Landlord's or Tenant's submitted FMRR, and shall notify Landlord and Tenant of
such determination. Notwithstanding anything to the contrary in this Lease,
if Landlord and Tenant cannot agree on the FMRR for the Premises, Tenant may
rescind its exercise of the Option by giving Landlord written notice of such
election to rescind within ten (10) days after receipt of Landlord's notice of
arbitration provided that Landlord receives such notice no later than six (6)
months prior to the Expiration Date.
(3) The decision of the arbitrator shall be binding upon
Landlord and Tenant.
(4) If Landlord and Tenant fail to agree upon and
appoint such arbitrator, then the appointment of the arbitrator shall be made
by the Presiding Judge of the Superior Court for the City and County of San
Francisco, or, if he or she refuses to act, by any judge having jurisdiction
over the parties.
49.
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(5) The cost of arbitration shall be paid by Landlord
and Tenant equally.
24. RIGHT OF FIRST OFFER.
(a) Whenever, during the term of this Lease, a lease by any
third party of any space on the First Floor of the Building expires (and is not
extended or replaced with a new lease to the same party) or otherwise
terminates, and such space (the "Available Space") becomes available for lease,
Landlord shall give Tenant written notice of such availability, identifying the
same and specifying the basic terms and conditions on which Landlord proposes to
lease the Available Space (the "Space Offer Notice"), including basic rent,
tenant improvement allowance (if any) and term. The Space Offer Notice shall be
given not more than eight (8) months nor less than two (2) months prior to the
date Tenant would be required to commence paying rent for the Available Space
(the "New Space Commencement Date"). Tenant shall have ten (10) business days
after its receipt of the Space Offer Notice in which Tenant may give Landlord
written notice of Tenant's acceptance of the Available Space on the terms and
conditions specified in the Availability Notice (the "Space Acceptance Notice").
Landlord hereby represents and warrants that the current lease for the Available
Space terminates under its terms on July 1, 2004 (the "Available Space Lease")
and, notwithstanding anything contained in this Paragraph 24 to the contrary,
Landlord hereby agrees that it will not extend the term of the "Available Space
Lease" beyond said date without first offering to Tenant the Available Space in
accordance with this Paragraph 24.
(b) Prior to giving the Space Offer Notice to Tenant and for
ten (10) business days thereafter, Landlord shall not enter into any lease of
the Available Space with any other person. If during such ten (10) business day
period Tenant gives Landlord a Space Acceptance Notice, Landlord and Tenant
shall then promptly enter into an amendment to this Lease adding the Available
Space to the Premises on the terms and conditions specified in the Space Offer
Notice with respect to the Available Space only.
(c) If Tenant has not given Landlord a Space Acceptance Notice
within ten (10) business days after Tenant's receipt of the Space Offer Notice,
then Landlord shall be free to lease the Available Space to any other person or
entity on any terms and conditions; provided, however, that Landlord shall not
lease the Available Space to any other person or entity on basic terms
materially less favorable to Landlord than those set forth in the Space Offer
Notice without first giving Tenant at least five (5) days prior written notice
of such proposed lease and the opportunity (during such five (5) day period by
delivery of written notice to Landlord) to agree to lease the Available Space on
the same terms and conditions as those of such proposed lease. In determining
whether "lease terms" are materially less
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favorable than the terms offered to Tenant, no terms other than rent, tenant
improvement allowance (if any) and minimum term shall be considered.
(d) Tenant's rights under this Paragraph 24 shall be subject
and subordinate to Landlord's right after the Commencement Date to enter into an
agreement with any existing tenant of the Available Space (other that the tenant
under the Available Space Lease) as to continuing occupancy of all or any
portion of the Available Space. Any space which is subject to such a prior right
or subsequent agreement shall not be deemed available for lease for purposes of
this Paragraph 24.
(e) If Tenant shall exercise the right of first offer granted
herein, Landlord does not guarantee that the Available Space will be available
on the projected commencement date for the lease thereof, if the then existing
occupants of the Available Space shall hold over, or for any other reason beyond
Landlord's reasonable control. In such event, rent with respect to the Available
Space shall be abated until Landlord legally delivers the same to Tenant, as
Tenant's sole recourse.
(f) The right of first offer herein shall, at Landlord's
election, be null and void, if (i) an Event of Default has occurred and is
continuing under the Lease on the date Tenant exercises its rights hereunder or
on the commencement date of the lease for the Available Space, or (ii) Landlord
has given to Tenant two (2) or more notices of default under this Lease and
Tenant actually was in default of the Lease during the twelve (12) month period
prior to the time that Landlord would be required to provide Tenant the
Availability Notice. If the Lease or Tenant's right to possession of the
Premises shall terminate in any manner whatsoever before Tenant shall exercise
the right herein provided, or if Tenant shall have subleased any portion of the
Premises or assigned all or any portion of the Lease (except in the event of a
Permitted Transfer), then immediately upon such termination, sublease or
assignment, the rights to lease the Available Space herein granted shall
simultaneously terminate and become null and void. Such right is personal to
Tenant. Under no circumstances whatsoever shall the assignee under a complete or
partial assignment of the Lease, or a subtenant under a sublease of the Premises
or any part thereof, have any right to exercise the right of first offer granted
herein; provided, however, that in the event of an assignment of this Lease
which is a Permitted Transfer, such permitted transferee shall have the right of
first offer granted herein. Notwithstanding anything to the contrary in this
Lease and subject to the provisions of this Paragraph 24, this right of first
offer shall be a continuing right which shall remain in effect at all times
during the term of this Lease and any extended term hereof.
25. TENANT'S SIGNS. Tenant shall have the right to place signage on the
exterior of the Building and in the lobby of the
51.
<PAGE>
Building. Any such signage is subject to all applicable laws, codes, rules and
regulations and to the approval of the City and County of San Francisco and the
reasonable approval of Landlord as to design, location and materials used. Any
sign must be prepared by a professional sign company. Tenant shall maintain all
signs at its cost and expense. If Tenant fails to maintain its signs and such
failure continues for a period of ten (10) days after notice thereof by Landlord
without Tenant having undertaken diligent efforts to complete the required
maintenance, Landlord may, but shall not be obligated, to perform any such
required maintenance. Tenant shall promptly pay to Landlord the cost of such
required maintenance as additional rent. At the termination of the Lease, Tenant
shall remove all its signs, and all damage caused by such removal shall be at
Tenant's expense.
26. PARKING. Tenant may lease on a monthly basis twenty-four (24)
parking spaces in the Building (the "Building Lot") and forty-eight (48) spaces
in the 345 Brannan Street lot (the "345 Brannan Street Lot") (such spaces to be
collectively referred to as the "Existing Parking"). Landlord shall also make
commercially reasonable efforts to provide Tenant with up to eight (8)
additional parking spaces (the "Additional Parking") in the 345 Brannan Street
Lot or an alternative lot (the "Alternative Lot") within 500 feet of the 345
Brannan Street Lot. The Additional Parking shall be subject to availability (as
determined in Landlord's reasonable discretion), at market rates (as determined
in Landlord's reasonable discretion) and subject to annual escalations.
Notwithstanding anything to the contrary in this Lease, Landlord hereby agrees
that at all times during the term of this Lease, Tenant shall have the
continuing right to lease the Existing Parking and the right to park up to two
(2) motorcycles in one (1) parking space at no additional charge. The use by
Tenant, its employees and invitees of these parking lots shall be subject to the
rules and regulations established from time to time by the owner or operator of
the lots. Landlord shall not "restripe" or otherwise improve any of these
parking lots unless required to do so by law. Notwithstanding anything to the
contrary in this Lease, the Building Lot and the 345 Brannan Street Lot shall be
managed and maintained in a first class manner and condition comparable to that
of parking facilities owned by Comparable Landlords.
27. BRIDGE ACCESS.
(a) One (1) one-story bridge extends from the second floor of
the Building and one (1) two-story bridge extends from the third floor of the
Building (collectively, "the Bridges"), respectively, toward the second and
third stories of that certain building commonly known as 35 Stanford Street, San
Francisco, California (the "Stanford Street Property"), which Bridges are owned
by the Landlord. Tenant may connect the second and third floors of the Premises
to the Stanford Street
52.
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Property by extending the existing Bridges, and performing any other required
improvements (collectively, the "Connection Alterations"), subject to applicable
laws and to Landlord's approval of the plans for such work, which approval
Landlord may withhold in its sole and absolute discretion. Tenant shall accept
the Bridges on an "as-is" basis. Landlord makes no representations or warranty
regarding the Bridges with respect to their condition or suitability for
Tenant's intended use.
(b) Provided Tenant constructs the Connection Alterations,
Tenant shall be responsible for all required maintenance of the Bridges,
pursuant to Paragraph 9 of the Lease. Provided Tenant constructs the Connection
Alterations, Tenant also shall be responsible for the costs of all utilities
used in or in connection with the Bridges, and such costs shall be excluded from
the definition of "Operating Expenses." The liability insurance that Tenant must
maintain pursuant to Paragraph 14 of the Lease shall cover the Bridges and
Tenant's use of the Bridges. Provided Tenant constructs the Connection
Alterations, Tenant hereby agrees to indemnify, defend and hold harmless
Landlord and its Indemnitees from and against any and all claims, demands,
damages, expenses, losses, costs and liabilities, including, without limitation,
reasonable attorneys' fees and expenses, incurred by, imposed on or payable by
Landlord arising out of any act or omission by any person who has gained access
to the Real Property through the Bridges or the Stanford Street Property, or
arising out of the condition of the Bridges or otherwise related to the Bridges;
this indemnity shall survive the termination of this Lease as to conditions
arising and events occurring prior to the termination of this Lease. Upon
termination of this Lease, Tenant shall, at Tenant's cost, cause the Stanford
Street Property-end of the Bridges to be sealed and finished to Landlord's
reasonable satisfaction.
Tenant shall provide Landlord with a deposit, escrow account or letter
of credit equal to the Landlord's reasonable estimate of the cost of removing
the Connection Alterations and restoring the Bridges to their condition prior to
construction of the Connection Alterations (the "Connection Removal Security")
at the expiration of the Lease term. If Tenant removes the Connection
Alterations and restores the Bridges to their condition prior to construction of
the Connection Alterations on or before the expiration or sooner termination of
this Lease, and such work is performed to the reasonable satisfaction of
Landlord, Landlord shall immediately return the Connection Removal Security to
Tenant. If Tenant fails to remove the Connection Alterations upon the expiration
or sooner termination of this Lease, Landlord may use the Connection Removal
Security to remove said Connection Alterations and restore the Bridges and shall
immediately return any remaining amount of the Connection Removal Security to
Tenant.
53.
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28. TENANT ALLOWANCE. On the Commencement Date, Landlord shall provide
Tenant with a tenant improvement allowance in the amount of four hundred twelve
thousand six hundred eighty-five and 00/100 dollars ($412,685.00) which sum
Tenant shall use for improvements of and to the Premises or for other related
costs.
29. APPROVALS. Except as otherwise expressly provided in this Lease,
whenever the Lease requires an approval, consent, designation, determination or
judgment by either Landlord or Tenant, such approval, consent, designation,
determination or judgment shall be reasonable, shall not be unreasonably
withheld or delayed and, in exercising any right or remedy hereunder, each party
shall at all times act reasonably and in good faith.
30. LICENSE AGREEMENT. Concurrently with the execution and delivery of
this Lease, Landlord and Tenant shall execute
54.
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and deliver a License Agreement in the form attached to this Lease as Exhibit D.
31. TERMINATION OF EXISTING LEASES. Upon the Commencement Date of this Lease,
the Existing Leases (as defined in Paragraph 22(u)) shall automatically
terminate without any further action by Landlord or Tenant; provided, however,
that any obligations which arose under the Existing Leases prior to the
Commencement Date shall survive such termination.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year first above written.
LANDLORD:
SOMA PARTNERS, L.P., a California
limited partnership
By SKS/Rosenberg, LLC, a Delaware
limited liability company, general
partner
By Stein Kingsley Stein, a
California corporation,
Member
By /s/ Paul Stein
--------------------
Its President
----------------
TENANT:
ADVENT SOFTWARE, INC., a Delaware
corporation
By /s/ Irv Lichtenwald
---------------------
Its: CFO
----------------
55.
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EXHIBIT A
FLOOR PLAN
[FLOOR PLANS FOR 2ND, 3RD, 4TH, 5TH & 6TH FLOORS APPEARS HERE]
<PAGE>
EXHIBIT A-1
STORAGE AREA
[FLOOR PLAN FOR STORAGE AREA APPEARS HERE]
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by tenants or used by them for any purpose
other than for ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, escalators and stairways are not for the
use of the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence, in the
reasonable judgment of Landlord, would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants.
2. Except as permitted in the License Agreement and the Lease, no sign,
placard, picture, name, advertisement or notice, visible from the exterior of
leased premises shall be inscribed, painted, affixed or otherwise displayed by
any tenant either on its premises or any part of the Building without the prior
written consent of Landlord, and Landlord shall have the right to remove any
such sign, placard, picture, name, advertisement, or notice without notice to
and at the expense of the tenant.
If Landlord shall have given such consent to any tenant at any
time, whether before or after the execution of the Lease, such consent shall in
no way operate as a waiver or release of any of the provisions hereof or of such
Lease, and shall be deemed to relate only to the particular sign, placard,
picture, name, advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, picture, name,
advertisement or notice.
No signs will be permitted on any entry door unless the door
is glass. All glass door signs must be approved by Landlord. Signs or lettering
shall be printed, painted, affixed or inscribed at the expense of the tenant by
a person approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom. Landlord
reserves the right to restrict the amount of directory space utilized by Tenant.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with, any window on any premises without the prior written
consent of Landlord. In any event, with the prior written consent of
<PAGE>
Landlord, all such items shall be installed inside of Landlord's standard
draperies and shall in no way be visible from the exterior of the Building. No
articles shall be placed or kept on the window sills so as to be visible from
the exterior of the Building.
5. Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 6 A.M. and at all hours on Saturdays, Sundays and holidays
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests the same in
writing. Each tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
During any invasion, mob, riot, public excitement or other
circumstance rendering such action advisable in Landlord's reasonable opinion,
Landlord reserves the right to prevent access to the Building by closing the
doors, or otherwise, for the safety of tenants and protection of the Building
and property in the Building.
6. No tenant shall employ any person or persons other than the janitor
of Landlord for the purpose of cleaning the premises unless otherwise agreed to
by Landlord in writing. Except with the written consent of Landlord, no person
or persons other than those approved by Landlord shall be permitted to enter the
Building for the purpose of cleaning the same. No tenant shall cause any
unnecessary labor by reason of such tenant's carelessness or indifference in the
preservation of good order and cleanliness. Landlord shall in no way be
responsible to any tenant for any loss of property on the Premises, however
occurring, or for any damage done to the property of any tenant by the janitor
or any other employee or any other person. Janitorial service shall include
ordinary dusting and cleaning by the janitor assigned to such work and shall not
include beating or cleaning of carpets or rugs or moving of furniture or other
special services. Janitorial service will not be furnished on nights when rooms
are occupied after 9:30 p.m., except for janitorial work that can be completed
without interfering with the occupants. Window cleaning shall be done only by
Landlord, and at such intervals and such hours as Landlord shall deem reasonably
appropriate.
7. No tenant shall obtain for use upon its premises ice, drinking
water, food, beverage, towel or other similar services, or accept barbering or
bootblacking services in its premises, except from persons authorized by
Landlord, which authorization shall not be unreasonably withheld, and at hours
and under regulations fixed by Landlord.
2.
<PAGE>
8. Each tenant shall see that the doors of its premises are closed and
securely locked and must observe strict care and caution that all water faucets
or water apparatus are entirely shut off before the tenant or its employees
leave such premises, and that all utilities shall likewise be carefully shut
off, so as to prevent waste or damage, and for any default or carelessness the
Tenant shall make good all injuries sustained by other tenants or occupants of
the Building. On multiple-tenancy floors all tenants shall keep the door or
doors to the Building corridors closed at all times except for ingress and
egress.
9. No tenant shall alter any lock or install a new or additional lock
or any bolt on any door of its premises without the prior written consent of
Landlord. If Landlord shall give its consent, the tenant shall in each case
furnish Landlord with a key for any such lock.
10. Landlord will furnish Tenant without charge with two (2) keys to
each door lock provided in the Premises by Landlord. Landlord may make a
reasonable charge for any additional keys. Tenant shall not have any such keys
copied or any keys made. Each tenant, upon the termination of the tenancy, shall
deliver to Landlord all the keys of or to the Building, offices, rooms and
toilet rooms which shall have been furnished to the Tenant or which the Tenant
shall have had made. In the event of the loss of any keys so furnished by
Landlord, Tenant shall pay Landlord therefor.
11. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein, and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
12. No tenant shall use or keep in its premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or use any
method of heating or air conditioning other than that supplied by Landlord or
otherwise approved by Landlord.
13. No tenant shall use, keep or permit to be used or kept in its
premises any foul or noxious gas or substance or permit or suffer such premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought or kept in or about any premises or the
Building; provided, however, domesticated animals may be kept in the Premises
provided that Tenant pays for any damage to the Real Property caused by such
animals and agrees to abide by any objections to such animals
3.
<PAGE>
raised by any other tenants in the Building, including ceasing to allow any
animals on the Real Property if required.
14. No cooking shall be done or permitted by any tenant on its
premises, except that the preparation of coffee, tea, hot chocolate and similar
items for tenants and their employees shall be permitted, nor shall such
premises be used for lodging.
15. Except with the prior written consent of Landlord, no tenant shall
sell, or permit the sale, at retail of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on any premises, nor
shall any tenant carry on, or permit or allow any employee or other person to
carry on, the business of stenography, typewriting or any similar business in or
from any premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the premises of any tenant be used for the
storage of merchandise or for manufacturing of any kind, or the business of a
public barber shop, beauty parlor, or any business or activity other than that
specifically provided for in such tenant's lease.
16. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. The location of
telephones, call boxes and other office equipment affixed to all premises shall
be subject to the written approval of Landlord. All electrical appliances must
be grounded and must meet UL Label Standards.
17. Except as permitted in the License Agreement, no tenant shall
install any radio or television antenna, loudspeaker or any other device on the
exterior walls of the Building.
18. No furniture, freight, equipment, packages or merchandise will be
received in the Building or carried up or down the elevators, except between
such hours, through such entrances and in such elevators as shall be designated
by Landlord. Landlord reserves the right to require that moves be scheduled and
carried out during nonbusiness hours of the Building. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary to properly distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe or property from any cause,
and all damage done to the Building by moving or maintaining any such safe or
other property shall be repaired at the expense of the Tenant.
19. No tenant shall overload the floor of its premises.
4.
<PAGE>
20. There shall not be used in any space, or in the public areas of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards. No other vehicles of any kind shall be
brought by any tenant into or kept in or about any premises in the Building
except for the underground connected parking garage.
21. Each tenant shall store all its trash and garbage within the
interior of its premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of in
the ordinary and customary manner of removing and disposing of trash and garbage
in the City of San Francisco without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only through
entryways and elevators provided for such purposes and at such times as Landlord
shall designate.
22. Canvassing, soliciting, distribution of handbills and other written
materials and peddling in the Building are prohibited and each tenant shall
cooperate to prevent the same.
23. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and address of the Building.
24. The requirements of tenants will be attended to only upon
application to Landlord. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special instructions from
Landlord, and no employee will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
25. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
26. These Rules and Regulations may be changed from time to time, as
Landlord may deem reasonably appropriate, and are in addition to, and shall not
be construed to in any way modify, alter or amend, in whole or in part, the
terms, covenants and conditions of the Lease.
5.
<PAGE>
EXHIBIT C
COMMENCEMENT DATE MEMORANDUM
THIS MEMORANDUM is entered into as of __________ __, 199_ by and
between SOMA PARTNERS, L.P., a California limited partnership ("Landlord"), and
ADVENT SOFTWARE, INC., a Delaware corporation ("Tenant"), with respect to that
certain Office Lease dated as of _____________ __, 199_ (the "Lease") respecting
certain premises (the "Premises") located in the building known as 301 Brannan
Street, San Francisco, California.
Pursuant to Paragraph 2(a) of the Lease, Landlord and Tenant hereby
confirm and agree that the Commencement Date (as defined in the Lease) is
_____________ __, 199_ and that the Expiration Date (as defined in the Lease) is
_________ __, 20__.
This Memorandum supplements, and shall be a part of, the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Memorandum as of the day and year first above written.
LANDLORD:
SOMA PARTNERS, L.P., a California limited
partnership
By SKS/Rosenberg, LLC, a Delaware limited
liability company, general partner
By Stein Kingsley Stein, a
California corporation, Member
By ________________________
Its ____________________
TENANT:
ADVENT SOFTWARE, INC., a Delaware
corporation
By
Its ___________________________
<PAGE>
EXHIBIT D
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made as of August 1,
1998, by and between SOMA PARTNERS, L.P., a California limited partnership
("Licensor"), and ADVENT SOFTWARE, INC., a Delaware corporation ("Licensee"),
with reference to the following recitals:
RECITALS
A. Licensor and Licensee entered into that certain Lease of even date
herewith (the "Lease"). Pursuant to the Lease, Licensee leases from Licensor
certain premises consisting of the second, third, fourth, fifth and sixth floors
located in the building (the "Building") commonly known as 301 Brannan Street,
in the City of San Francisco, State of California (the "Premises"). Each
capitalized term used in this Agreement, but not defined herein, shall have the
meaning ascribed to it in the Lease.
B. Licensee desires to install, operate and maintain telecommunications
or satellite equipment, generators and/or signage on the roof of the Premises
(the "Roof"), and Licensor desires to grant Licensee a license for this purpose,
all on the terms and conditions set forth herein.
THEREFORE, for good and valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. License. Licensor hereby grants to Licensee, subject to all of the
terms and conditions contained in this Agreement, an exclusive license (the
"License") to install, operate and maintain on a five hundred (500) square foot
area of the Roof (as shown on Exhibit A attached hereto) (the "Licensed Area"),
and to remove therefrom, telecommunications or satellite equipment, generators
and/or signage (the design and materials of such signage to be subject to
Landlord's reasonable consent and applicable laws and regulations), as may be
required by Licensee during the term of the Lease or any extension thereof
(collectively, the "Equipment"). The License includes the right to have access
to the Roof in connection with the use thereof as permitted herein.
2. Licensor's Recapture Option; License Termination. If Licensee has
not exercised its rights under the License to use the License Area on or before
two (2) years after the Commencement Date of the Lease, then Licensor may send
written notice to Licensee requesting use of the License Area ("Recapture
Notice"). Within ten (10) days of the Recapture Notice, Licensee must notify
Licensor in writing of its intent to use the License Area. If Licensee does not
so notify Licensor within such period, Licensee's rights under this License will
terminate. If Licensee notifies Licensor in
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<PAGE>
writing of its intent to use the License Area, it must install or substantially
undertake the installation of the Equipment in the License Area within thirty
(30) days of such notification. If Licensee does not substantially undertake
such installation within such period, Licensee's rights under this License will
expire at the end of such period.
3. Use. Licensee shall use the License Area only in connection with
Licensee's or its successors' or its assigns' (in connection with Permitted
Transfer) operations in the Premises. Licensee's use of the License Area shall
not interfere with the maintenance or operation of any other equipment and/or
structure that is located on the Roof at the time Licensee installs the
Equipment in the License Area. Licensee shall have access to the Roof as
required for the installation, operation, maintenance and removal of the
Equipment. No changes, modifications, additions or substitutions shall be made
to the Equipment without the prior written approval of Licensor, which shall not
be unreasonably withheld; provided, however, that Licensee may remove the
Equipment at any time during the term of this Agreement or the Lease without
Licensor's consent. If Licensee removes all of the Equipment, Licensee shall
provide Licensor with written notice of such removal within ten (10) days
thereof, and this Agreement shall terminate upon the date of such removal.
4. Condition of Roof. Licensee acknowledges that the License Area and
the Roof shall be used by Licensee pursuant to the License on an "as is" basis
and that Licensor has not made any representation or warranty regarding the
License Area or the Roof with respect to its suitability for the installation,
maintenance or operation of the Equipment. Licensee's decision to use the
License Area is based on Licensee's own investigation and analysis of the
License Area. Licensee shall be obligated, at its sole cost and expense, to
repair any and all damage caused by Licensee's installation, maintenance,
operation or removal of the Equipment in the License Area or exercise of
Licensee's rights under this License.
5. Maintenance. Licensee shall repair any damage to the Roof or the
Premises caused by its use of the License Area or by the installation,
operation, maintenance or removal of the Equipment. Following Licensee's
installation of the Equipment in the License Area, Licensee shall maintain the
License Area to the extent such maintenance is required due to Licensee's use of
the License Area or as a result of Licensee's Equipment or exercise of
Licensee's rights under this License, and Licensor shall have no responsibility
to maintain or operate the Equipment. Notwithstanding anything to the contrary
in this Agreement, Licensee shall have no obligations under this Agreement until
Licensee exercises any of its rights under this License.
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<PAGE>
6. Utilities. Licensee shall be responsible for the actual cost of all
utilities consumed in connection with the use of the License and shall pay such
cost either directly to the utility provider or to the Landlord as additional
rent, and such cost shall be excluded from the definition of "Operating
Expenses" under the Lease.
7. Assignment and Subletting. Except in connection with a Permitted
Transfer, Licensee shall not: (a) assign, encumber, transfer or convey this
License or any interest in this License; (b) allow any assignment or transfer of
Licensee's interest in this License, whether by operation of law or otherwise;
or (c) permit the use of the License Area, the Roof or the Equipment by anyone
other than Licensee. Any attempted assignment, sublease or other transfer by
Licensee of all or any interest in the License Area or this License in violation
of this paragraph shall be void and of no legal effect and shall constitute an
event of default under this License.
8. Rules and Regulations. Licensee shall comply with any reasonable
rules and regulations Licensor may enact with respect to the use of the License
Area or Roof and/or the installation, operation or maintenance of the Equipment.
9. Insurance. The liability insurance that Licensee must maintain
pursuant to Paragraph 14 of the Lease shall cover the Roof and Licensee's use of
the License.
10. Indemnity. Licensee agrees to indemnify, defend and hold harmless
Licensor, its agents, officers, directors, shareholders, partners, employees,
servant from and against any and all claims, liabilities, demands, costs,
damages, losses, actions, causes of action or judgments (including reasonable
legal fees and expenses) (the "Losses") which result from or arise out of the
installation, existence, operation, maintenance or removal of the Equipment or
Licensee's use of the License, except to the extent any such Losses are caused
by the gross negligence or willful misconduct of Licensor or its Indemnitees.
Licensee's obligations under this paragraph shall survive the expiration or
earlier termination of this Agreement.
11. Termination; Default. The License and this Agreement shall
automatically terminate in the event the Lease terminates for any reason. In
addition, Licensor may elect to terminate the License and this Agreement at any
time upon written notice to Licensee; provided, however, Licensor agrees not to
exercise such right unless (i) Licensee has failed to cure any default under or
breach of this Agreement within thirty (30) days after Licensor has given to
Licensee written notice of such a default under this Agreement (or such longer
period of time required if such default or breach cannot be cured within said
thirty (30) day period and Licensee commences to cure such default within said
thirty (30) day period) or (ii) Licensee has failed to cure any default under
the Lease within the time periods and pursuant
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<PAGE>
to the terms specified in the Lease. If the License and this Agreement are
terminated as provided in this Paragraph 11, then Licensee shall at its expense:
(i) immediately remove the Equipment from the Roof; and (ii) repair any damage
resulting from such removal.
12. Compliance With Laws. Licensee, at Licensee's sole cost and
expense, shall comply with all laws, orders and regulations of federal, state,
county and municipal authorities with respect to the installation, operation and
maintenance of the Equipment.
13. Access By Licensor. Licensor reserves and shall at any and all
times, after reasonable notice, have full access to the Roof to inspect the
same.
14. Entire Agreement; Nature of Rights; Modifications. This Agreement
constitutes the entire agreement between Licensor and Licensee with respect to
the License and no promises or representations, express or implied, either
written or oral, not herein set forth shall be binding upon or inure to the
benefit of Licensor or Licensee. This Agreement shall not be modified by any
oral agreement, either express or implied, and all modifications hereof shall be
in writing and signed by both Licensor and Licensee.
15. Attorneys' Fees. In the event of any action or proceeding between
Licensor and Licensee to enforce or interpret any provision of this Agreement,
the losing party shall pay to the prevailing party all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses, incurred
in such action and in any appeal in connection therewith by such prevailing
party. The "prevailing party" will be determined by the court before whom the
action was brought based upon an assessment of which party's major arguments or
positions taken in the suit or proceeding could fairly be said to have prevailed
over the other party's major arguments or positions on major disputed issues in
the court's decision.
16. Counterparts. This Agreement may be signed in multiple counterparts
which, when signed by all parties, shall constitute a binding agreement.
17. Successors in Interest. Subject to the restrictions of Paragraph 7
hereof, the provisions of this Agreement shall inure to the benefit of and bind
Licensor and Licensee and their
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EXHIBIT 13.1
SELECTED PORTIONS OF ADVENT'S 1998 ANNUAL REPORT TO STOCKHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Advent is a leading provider of stand-alone and client/server software
products, data interfaces and related maintenance and services that automate,
integrate and support mission-critical functions of investment management
organizations. Our clients vary significantly in size and assets under
management and include investment advisors, brokerage firms, banks, hedge funds,
corporations, public funds, universities and non-profit organizations.
ACQUISITIONS
In February 1996, we acquired Data Exchange, Inc. (the DX Group), a private
company based in New York, for $4.0 million in cash and an $800,000 note. This
note was paid during the third quarter of 1996 and did not bear interest. The
transaction was accounted for as a purchase. We incurred a charge of $5.6
million in connection with the write-off of in-process research and development.
In November 1996, we issued 35,000 shares of common stock in exchange for
all of the outstanding shares of Bold Software, Inc., a private software
development company based in New York. This business combination was accounted
for as a pooling of interests. Prior year amounts have not been restated to
include Bold Software's results of operations as such operations were
immaterial. As a result of this business combination, we introduced Advent
Partner, a tax layering and partnership allocation solution which integrates
with Axys.
In February 1998, we issued 250,000 shares of common stock in exchange for
all of the outstanding shares of MicroEdge, Inc., a leading provider of software
products to foundations, corporations and other organizations to manage their
grant-making activities. This business combination was accounted for as a
pooling of interests and the results of operations of MicroEdge are included in
the financial statements beginning January 1, 1998. The results of operations as
well as the assets and liabilities of MicroEdge in 1997, or prior years, were
not material to the consolidated results of operations or financial position.
Accordingly, we did not restate our financial statements for periods prior to
January 1, 1998.
In May 1998, we issued 170,000 shares of common stock for certain assets of
the Grants Management Division of Blackbaud, Inc., a privately held company
located in Charleston, South Carolina. Through this acquisition we combined the
Grants Management product line of Blackbaud with MicroEdge. This transaction was
accounted for as a purchase and the results of operations of the business and
assets acquired are included in our financial statements from the date of
acquisition. We incurred a charge relating to in-process research and
development and other expenses of $5.4 million in connection with this
transaction.
In November 1998, we issued 15,000 shares of common stock and paid $4.1
million in exchange for all the outstanding shares of Hub Data, Inc., a
distributor of consolidated securities information and data to investment
management organizations. Hub Data is located in Cambridge, MA and delivers
services to over 240 institutional investment firms. This business combination
was accounted for as a purchase. We incurred a charge relating to in-process
research and development of $3.0 million in connection with this transaction.
In November 1998, we paid AUS $583,000 (approximately US $370,000) in
exchange for all the outstanding shares of Portfolio Management Systems Pty.,
Ltd., a distributor of Advent products in Australia. This business combination
was accounted for as a purchase. This acquisition will provide an international
channel for sale of our products and services. Subsequent to the acquisition, we
changed the name of this subsidiary to Advent Australia.
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
Net revenues were $71 million, $48.6 million, and $36.7 million in 1998,
1997, and 1996, respectively, representing increases of 46% from 1997 to 1998
and 32% from 1996 to 1997. Our net revenues are derived from license and
development fees, maintenance and other recurring revenues, and professional
services and other revenues related to our software products. In each of 1998,
1997 and 1996, substantially all of our net revenues were from domestic sales,
with international sales representing less than 3% of net revenues. License
revenues are derived from the licensing of software products while development
fees are derived from development contracts that we have entered into with other
companies, including customers and development partners. Maintenance and other
recurring revenues are derived from maintenance fees charged in the initial
licensing year, renewals of annual maintenance services in subsequent years and
revenues derived from client utilization of proprietary interfaces to access
pricing and other data supplied by third parties. Professional services and
other revenues includes fees for consulting, implementation and integration
management, custom programming, training services and semi-annual conferences.
Axys and its related products and services accounted for the majority of
net revenues in 1998, 1997 and 1996. However, we have been successful in
increasing multi-product sales by emphasizing our suite of products and,
therefore, new products have accounted for an increasing portion of net revenues
in all three years.
Each of the major revenue categories has historically varied as a
percentage of net revenues and we expect this variability to continue in future
periods. This variability is primarily due to the timing of the introduction of
new products, the relative size and timing of individual licenses, as well as
the complexity of the implementation, the resulting proportion of the
maintenance and professional services components of these license transactions
and the amount of client utilization of pricing and related data.
LICENSE AND DEVELOPMENT FEES. License and development fees revenues were
$36.6 million, $23.7 million and $17.0 million in 1998, 1997 and 1996,
respectively, representing increases of 54% from 1997 to 1998 and 40% from 1996
to 1997. License and development fees revenues as a percentage of net revenues
were 52%, 49% and 46% in 1998, 1997 and 1996, respectively. The relative
increase from year to year was primarily due to continued demand for our suite
of products and increased development fees. We typically license our products on
a per server, per user basis with the price per site varying based on the
selection of the products licensed and the number of authorized users. As we
carry out larger implementations and continue our Internet Initiative, we may
enter into further development contracts through which we earn development fees.
In 1998, license revenues also increased due to an increase of multi-product
transactions. We expect these transactions to continue to represent a
significant proportion of revenues. In addition, to a lesser extent, the
acquisition of MicroEdge also contributed to the increase of license and
development fees revenue.
MAINTENANCE AND OTHER RECURRING. Maintenance and other recurring revenues
were $25.5 million, $18.0 million and $14.7 million in 1998, 1997 and 1996,
respectively, representing increases of 42% from 1997 to 1998 and 23% from 1996
to 1997. Maintenance and other recurring revenues, as a percentage of net
revenues, were 36%, 37% and 40% in 1998, 1997 and 1996, respectively. The growth
in maintenance and other recurring revenues, in absolute dollars, in all periods
was primarily due to a larger customer base and higher average maintenance fees.
Higher average maintenance fees are due to the increased complexity of the
maintenance services provided and increased client utilization of proprietary
interfaces to access pricing and other data supplied by external parties. Our
proprietary interfaces enable users of Axys to retrieve critical data from
external sources, including pricing, corporate actions, and analytical and
fundamental data via interfaces to information vendors, such as Interactive
Data. The decrease in maintenance and other recurring revenues as a percentage
of net revenues, from year to year, is due to license and development fees
revenue increasing at a faster rate. In addition, in 1998, increased demand for
implementation management services and the growth of our client base due to
multi-product transactions contributed to the increase in maintenance and other
recurring revenues. To a lesser extent, the acquisitions we made in 1998 also
contributed to the rise in maintenance and other recurring revenues.
PROFESSIONAL SERVICES AND OTHER. Professional Services and other revenues
were $8.9 million, $6.9 million and $5.1 million in 1998, 1997 and 1996,
respectively, representing increases of 29% from 1997 to 1998 and 35% from 1996
to 1997. Professional services and other revenues as a percentage of net
revenues were relatively stable at 12% for 1998 and 14% for both 1996 and 1997.
We expect professional services and other revenue to remain in the range of
12-14% as a percentage of net revenue in the future. The increase of $2.0
million from 1997 to 1998 and $1.8 million from 1996 to 1997 was due to
additional consulting revenue associated with higher product sales activity and
additional interface business resulting from
<PAGE>
higher market demand for automated interfaces. In 1998, the increase was also
attributed to increased consulting fees and, to a lesser extent, the acquisition
of MicroEdge.
COST OF REVENUES
COST OF LICENSE AND DEVELOPMENT FEES. Cost of license and development fees
revenues were $2.9 million, $601,000, and $600,000 in 1998, 1997 and 1996,
respectively, representing 8%, 3% and 4% of license and development fees
revenues in these periods, respectively. Cost of license and development fees
revenue consists primarily of the cost of product media and duplication,
manuals, packaging materials and the direct labor involved in producing and
distributing our software. The increase from 1997 to 1998 was primarily due to
costs associated with increased development fee projects which have a higher
cost of revenue.
COST OF MAINTENANCE AND OTHER RECURRING. Cost of maintenance and other
recurring revenues were $6.3 million, $4.8 million and $3.8 million in 1998,
1997 and 1996, respectively, representing 25%, 27% and 26% of maintenance and
other recurring revenues in these periods, respectively. These costs are
primarily comprised of the direct costs of providing technical support and other
services for recurring revenues and the engineering costs associated with
product updates. These expenses, in absolute dollars, increased in each year due
to increased staffing required to support a larger customer base and more
complex implementations. From 1997 to 1998, maintenance and other recurring
revenues as a percentage of related revenues decreased due primarily to
economies of scale.
COST OF PROFESSIONAL SERVICES AND OTHER. Cost of professional services and
other revenues were $3.9 million, $3.6 million and $2.5 million in 1998, 1997
and 1996, respectively, representing 44%, 53% and 49% of professional services
and other revenues in these periods, respectively. These costs consist primarily
of personnel related costs of the client services and support organization that
are incurred in providing consulting, custom programming, conversions of data
from clients' previous systems, and cost of hosting our client conferences. To
the extent that such personnel are not fully utilized in consulting, training,
conversion or custom programming projects, they are allocated to presales,
marketing and engineering activities and the resultant costs are charged to
operating expenses. Cost of professional services and other, in absolute
dollars, increased year to year due to increase staffing necessary to provide
services to an expanded installed base. Cost of professional services as a
percentage of related revenues increased in 1997 from 1996 due to the increase
in personnel dedicated to accelerating the conversion of existing clients to
Axys Release 2. Cost of professional services as a percentage of related
revenues decreased in 1998 due primarily to economies of scale.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $23.5 million, $15.6
million and $12.4 million in 1998, 1997 and 1996, respectively, representing
increases of 51% from 1997 to 1998 and 25% from 1996 to 1997. Sales and
marketing expenses, as a percentage of net revenues remained steady at 33%, 32%
and 34% in 1998, 1997 and 1996, respectively. Sales and marketing expenses
consist primarily of costs of all personnel involved in the sales and marketing
process, sales commissions, advertising and promotional materials, sales
facilities expense, trade shows, and seminars. Sales and marketing expenses
increased from 1997 to 1998 due to the continued increase in sales and marketing
employees and increased marketing expenses related to new product introductions
such as Advent Office, Advent Browser Reporting and Advent Warehouse as well as
focused sales and marketing efforts towards our Internet Initiative. The
increase from 1996 to 1997 was due to increased headcount and new product
introductions.
PRODUCT DEVELOPMENT. Product development expenses were $12.6 million, $9.4
million and $6.7 million in 1998, 1997 and 1996, respectively, representing
increases of 33% from 1997 to 1998 and 40% from 1996 to 1997. Product
development expenses as a percentage of net revenues were relatively stable at
18%, 19% and 18% in 1998, 1997 and 1996, respectively. Product development
expenses consist primarily of personnel costs as we increase our product
development efforts to accelerate the rate of new product introductions.
Development costs subsequent to achievement of technological feasibility have
not been significant during these periods and, accordingly, all such costs have
been expensed as incurred. We expect product development expenses to continue to
approximate 18-20% of net revenues as we continue to focus on new products and
technology.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $7.5
million, $5.1 million and $4.4 million in 1998, 1997 and 1996, respectively,
representing increases of 47% from 1997 to 1998 and 16% from 1996 to 1997.
General and administrative expenses as a percentage of net revenues were 11% in
1998 and 1997, and 12% in 1996. General and administrative expenses consist
primarily of personnel costs for finance, administration, operations and general
management,
<PAGE>
as well as legal and accounting expenses. The increase from 1997 to 1998 and
from 1996 to 1997 was primarily due to increased staffing. In addition, from
1997 to 1998, the cost of additional leased property to support the growth of
the company also contributed to the increase.
PURCHASED RESEARCH AND DEVELOPMENT AND OTHER. In 1996, we incurred a charge
of $5.6 million in connection with the write-off of in-process research and
development due to the acquisition of Data Exchange. In May 1998, we issued
170,000 shares of common stock for certain assets of the Grants Management
Division of Blackbaud, Inc. and incurred a charge for in-process research and
development and other expenses of $5.4 million in connection with this
transaction. In November 1998, we incurred a charge for in-process research and
development of $3.0 million in connection with the acquisition of Hub Data. In
determining the amount of in-process research and development, we engaged an
independent valuation firm to conduct an appraisal of the acquired assets. The
intangible assets acquired, including in-process research and development
expenses, were valued based on estimates of future net cash flows discounted to
their present value at risk-adjusted rates of return.
The in-process research and development charge for Hub Data was determined
by estimating the net cash flows from the sale of the resulting projects,
discounted to net present value using a 25% discount rate and also assumed that
the project was approximately 61% complete.
The Blackbaud transaction resulted in the acquisition of certain assets,
but not an ongoing business. The assets acquired included rights to Blackbaud's
32-bit in-process technology, access to certain Blackbaud source code to be used
in developing the new Advent products, a non-compete agreement and access to the
Blackbaud customer base. The acquired technology was purchased for use in
Advent's research and development "grant management" project and had no
alternative future use.
In September 1998, the Chief Accountant of the SEC expressed concerns about
the methodologies many companies were using in determining the amount of
in-process research and development. A working group has been formed to study
this issue, however at this time it is unknown what guidelines this group will
generate and whether these guidelines will differ from the valuation methods
traditionally employed. The SEC's concerns appear to focus on excluding from the
valuations the costs of any efforts to complete development currently underway
and an apportionment of cash flow estimates based on the stage of completion of
in-process technology. The methodology used to value the intangible assets
acquired in the Hub Data and Blackbaud transactions took into account these
concerns raised by the SEC. Accordingly, we believe that the valuation
methodology used by the independent appraiser is appropriate.
INTEREST INCOME, NET
Interest income was $1,442,000, $1,236,000 and $1,165,000 in 1998, 1997 and
1996, respectively. Interest income, net consists of interest income, interest
expense and miscellaneous non-operating income and expense items. The increases
were due to greater interest income generated in 1997 and 1998 from higher cash
and short-term investment balances.
INCOME TAXES
We had effective tax rates of 40%, 37% and 163% in 1998, 1997 and 1996,
respectively. The effective tax rate in 1996 reflected the impact of the $5.6
million charge for in-process research and development, which was not deductible
for tax purposes. Excluding the effect of the charge on the 1996 rate, these
rates differ from the federal statutory rate primarily due to state income tax,
offset by certain research and development credits.
LIQUIDITY AND CAPITAL RESOURCES
We fund our operations primarily from cash generated from operations. Net
cash provided by operating activities was $15.6 million, $7.7 million and $1.6
million in 1998, 1997 and 1996, respectively. Net cash used in investing
activities was $8.5 million, $14.1 million and $5.6 million in 1998, 1997 and
1996, respectively. Included in the 1998 amount for cash used in investing
activities was $4.7 million for the acquisition of Hub Data and Portfolio
Management Systems. The remaining amounts were used for acquisitions of fixed
assets. Net cash provided by financing activities was $2.5 million for 1998,
primarily from proceeds from the issuance of common stock through our employee
stock purchase plan. As of December 31, 1998, we had $43.3 million in cash, cash
equivalents and short-term investments. We believe that our existing cash and
cash equivalents, short-term investments and cash expected to be generated from
operations will be sufficient to meet our cash and capital requirements at least
through fiscal 1999.
<PAGE>
IMPACT OF YEAR 2000 ISSUE
To the best of our knowledge, the products we currently license have been
designed to be and continue to be Year 2000 Compliant. Year 2000 Compliant means
that our products will continue to operate substantially in accordance with
published documentation on and after January 1, 2000. However, some of the
computer programs used in our internal operations may not be Year 2000 Compliant
as these programs rely on time-sensitive software that was written using two
digits rather than four to identify the applicable year. These programs may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We have outlined a four-stage plan to comply with Year 2000 processing
standards: assessment, renovation, validation and implementation. The assessment
phase involves identifying the problem, identifying all systems at risk,
prioritizing and developing contingency plans and identifying potential
solutions and costs. The renovation phase involves applying the fixes to the
identified problems and re-evaluating contingency plans once fixes have been
made. The validation phase requires testing the fixes either by paper study or
by a dry run of day-to-day activities. Implementation is the final phase in
which we identify training needs, establish a training plan and start training
people to properly execute the contingency plans. It is our intent to complete
this process by late 1999.
We are currently in the assessment phase, having completed identifying all
systems at risk. Our next step is to evaluate contingency plans and identify
potential solutions and costs for all identified risks. The necessity of any
contingency plan must be evaluated on a case-by-case basis and will vary
considerably in nature depending on the Year 2000 issue it may need to address.
We found that two servers and miscellaneous software need to be upgraded and
phone switches need to be replaced at a cost of approximately $100,000. Costs
for replacing most software have been insignificant as most are under
maintenance contracts or under warranty. To date, we have spent approximately
$16,000 on reallocation of personnel resources for the Year 2000 issue. In
addition, we expect to reallocate personnel resources, at a cost of
approximately $65,000, to attend to this matter. We believe any other
modifications deemed necessary will be made on a timely basis and estimate that
the cost of such modifications will not have a material effect on our operating
results.
Our expectation as to the extent and timeliness of modifications required
in order to achieve Year 2000 compliance is a forward-looking statement subject
to risks and uncertainties. Actual results may vary materially as a result of a
number of factors, including, among others, those described in this paragraph.
There can be no assurance that we will be able to successfully modify on a
timely basis such products, services and systems to comply with Year 2000
requirements, nor that our contingency plans will prove effective in the event
that we fail to achieve Year 2000 Compliance, nor that the cost of such
procedures will not exceed original estimates, any of which could have a
material adverse effect on our operating results. Additionally, we have
initiated communications with third party suppliers of the major computers,
software, and other equipment used, operated, or maintained by us to identify
and, to the extent possible, to resolve issues involving the Year 2000 problem.
However, we have limited or no control over the actions of these third party
suppliers. Thus, while we expect that they will be able to resolve any
significant Year 2000 problems with these systems, there can be no assurance
that these suppliers will resolve any or all Year 2000 problems with these
systems before the occurrence of a material disruption to the business of ours
or any of their customers. Any failure of these third parties to resolve Year
2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition, and results of operations.
Additionally, during the next twelve months there is likely to be an increased
customer focus on addressing Year 2000 issues, creating the risk that customers
may reallocate capital expenditures to fix year 2000 problems of existing
systems and may also delay implementation of any new software until sometime
after January 1, 2000. Although we have not experienced the effects of such a
trend to date, if customers defer purchases of our software because of such a
reallocation, it could adversely effect our operating results.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the FASB issued Statement of Financial Accounting
Standards 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 recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management has not yet
evaluated the effects of this change on its operations. We will adopt SFAS No.
133 as required for our first quarterly filing of fiscal year 2000.
<PAGE>
In December 1998, the Accounting Standards Executive Committee (AcSEC)
released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2,
"Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is vendor-specific
objective evidence (VSOE) of the fair values of all the undelivered elements
that are not accounted for by means of long-term contract accounting, (2) VSOE
of fair value does not exist for one or more of the delivered elements, and (3)
all revenue recognition criteria of SOP 97-2 (other than the requirement for
VSOE of the fair value of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is prohibited. We
are evaluating the requirements of SOP 98-9 and the effects, if any, on the our
current revenue recognition policies.
FORWARD-LOOKING STATEMENTS
The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analysis and other
forward-looking statements that are based on current expectations and
assumptions made by management. Words such as "expects", "anticipates",
"intends", "plans", "believes", "seeks", "estimates", and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks and uncertainties, which are difficult to predict.
Therefore, actual results could differ materially from those expressed or
forecasted in the forward-looking statements as a result of the factors
summarized below and other risks detailed from time to time in reports filed
with the Securities and Exchange Commission, including our 1998 Annual Report to
Stockholders, incorporated by reference in our 1998 Form 10-K Report.
Additionally, the financial statements for the periods presented are not
necessarily indicative of results to be expected for any future period, nor for
the entire year.
We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. These risks include the potential
for period to period fluctuations in operating results and the dependence on the
successful development and market acceptance of new products and product
enhancements on a timely, cost effective basis, as well as the stability of
financial markets, maintenance of our relationship with Interactive Data and
price and product/performance competition. In particular, our net revenues and
operating results have varied substantially from period-to-period on a quarterly
basis and may continue to fluctuate due to a number of factors. Our software
products typically are shipped shortly after receipt of a signed license
agreement. License backlog at the beginning of any quarter typically represents
only a small portion of that quarter's expected revenues. In addition, as
licenses into multi-user networked environments increase both in individual size
and number, the timing and size of individual license transactions are becoming
increasingly important factors in our quarterly operating results. The sales
cycles for these transactions are often lengthy and unpredictable, and the
ability to close large license transactions on a timely basis or at all could
cause additional variability in our quarterly operating results. In addition,
our results could be adversely impacted by generic issues surrounding market
volatility, global economic uncertainty and reductions in capital expenditures
by large customers. The target clients for our products include a range of
organizations that manage investment portfolios, including investment advisors,
brokerage firms, banks and hedge funds. In addition, we target corporations,
public funds, universities and non-profit organizations, which also manage
investment portfolios and have many of the same needs. The success of many of
our clients is intrinsically linked to the health of the financial markets. We
believe that demand for our products could be disproportionately affected by
fluctuations, disruptions, instability or downturns in the financial markets
which may cause clients and potential clients to exit the industry or delay,
cancel or reduce any planned expenditures for investment management systems and
software products.
Our future success will continue to depend upon our ability to develop new
products, such as Moxy, Qube, and Geneva, that address the future needs of our
target markets and to respond to emerging industry standards and practices. We
are directing a significant amount of our product development efforts to the
on-going development of Geneva. The failure to achieve widespread market
acceptance of Geneva on a timely basis would adversely affect our business and
operating results. To take advantage of the Internet, we have launched an
Internet initiative whereby we are developing services, both announced and
unannounced, to bring Internet-based products and services to clients. The first
of these services, Rex, was launched during the second quarter of 1997. The
second is the Advent Browser Reporting product which was launched in the third
quarter of 1998. As we begin development of new products and services under the
Internet initiative, we have and will continue to enter into development
agreements with information providers, clients, or other companies in order to
accelerate the delivery of new products and services. There can be no assurance
that we will be successful in marketing Rex, Advent
<PAGE>
Browser Reporting or in developing other Internet services. Our failure to do so
could adversely affect our business and operating results.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
December 31, 1998 1997
- --------------------------------------------------------------------------------
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 35,602 $ 26,025
Short-term investments 7,682 10,031
Accounts receivable, net of allowance
for doubtful accounts of $362 in 1998
and $265 for 1997 $17,452 12,226
Prepaid expenses and other 2,010 1,391
Deferred income taxes 1,900 1,418
----------------- ----------------
Total current assets 64,646 51,091
----------------- ----------------
Fixed assets, net 11,433 7,424
Other assets, net 11,131 770
----------------- ----------------
Total assets $ 87,210 $ 59,285
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,793 $ 814
Accrued liabilities 6,270 2,977
Deferred revenues 14,511 6,832
Income taxes payable 3,924 1,632
----------------- ----------------
Total current liabilities 26,498 12,255
----------------- ----------------
Long-term liabilities:
Other liabilities 537 537
----------------- ----------------
Total liabilities 27,035 12,792
----------------- ----------------
Stockholders' equity:
Preferred Stock, $0.01 par value
Authorized: 2,000 shares
Issued and outstanding: none - -
Common stock, $0.01 par value
Authorized: 40,000 shares
Issued and outstanding: 8,209 shares
in 1998 and 7,582 shares in 1997 82 76
Additional paid-in-capital 48,154 37,776
Retained earnings 11,939 8,641
----------------- ----------------
Total stockholders' equity 60,175 46,493
----------------- ----------------
Total liabilities and stockholders'
equity $ 87,210 $ 59,285
================= ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------
(in thousands, except per share data)
REVENUES:
License and development fees $ 36,588 $ 23,710 $ 16,951
Maintenance and other recurring 25,539 18,042 14,707
Professional services and other 8,871 6,861 5,086
-------- -------- --------
Net revenues 70,998 48,613 36,744
-------- -------- --------
COST OF REVENUES:
License and development fees 2,931 601 600
Maintenance and other recurring 6,261 4,832 3,793
Professional services and other 3,874 3,638 2,513
-------- -------- --------
Total cost of revenues 13,066 9,071 6,906
-------- -------- --------
Gross margin 57,932 39,542 29,838
-------- -------- --------
OPERATING EXPENSES:
Sales and marketing 23,465 15,580 12,446
Product development 12,582 9,439 6,731
General and administrative 7,533 5,125 4,422
Purchased research and development
and other 8,440 - 5,648
-------- -------- --------
Total operating expenses 52,020 30,144 29,247
-------- -------- --------
Income from operations 5,912 9,398 591
Interest income, net 1,442 1,236 1,165
-------- -------- --------
Income before income taxes 7,354 10,634 1,756
Provision for income taxes 2,955 3,921 2,855
-------- -------- --------
Net income (loss) $ 4,399 $ 6,713 $(1,099)
======== ======== ========
NET INCOME (LOSS) PER SHARE DATA
DILUTED
Net income (loss) per share $ 0.51 $ 0.84 $ (0.16)
Shares used in per share calculations 8,703 8,017 7,070
Basic
Net income (loss) per share $ 0.55 $ 0.89 $ (0.16)
Shares used in per share calculations 8,066 7,521 7,070
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid in Retained Total
Shares Amount Capital Earnings Equity
- ---------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 6,873 $ 68 $ 31,202 $ 3,314 $ 34,584
Exercise of stock options 383 4 702 706
Tax benefit from exercise of
stock options 2,175 2,175
Common stock issued under employee
stock purchase plan 53 1 982 983
Pooling of interests with Bold Software 35 - (287) (287)
Net loss (1,099) (1,099)
------- ------ ---------- ---------- -----------
Balances, December 31, 1996 7,344 73 35,061 1,928 37,062
------- ------ ---------- ---------- -----------
Exercise of stock options 200 2 1,143 1,145
Tax benefit from exercise of stock options 704 704
Common stock issued under employee stock
purchase plan 38 1 868 869
Net income 6,713 6,713
------- ------ ---------- ---------- -----------
Balances, December 31, 1997 7,582 76 37,776 8,641 46,493
------- ------ ---------- ---------- -----------
Exercise of stock options 154 1 1,580 1,581
Tax benefit from exercise of stock options 795 795
Common stock issued under employee stock
purchase plan 38 1 945 946
Pooling of interest with MicroEdge 250 3 (1,101) (1,098)
Shares issued in connection with acquisition
of HubData 15 - 546 546
Shares issued in connection with acquisition
of Blackbaud 170 1 6,512 6,513
Net income 4,399 4,399
------- ------ ---------- ---------- -----------
Balances, December 31, 1998 8,209 $ 82 $ 48,154 $ 11,939 $ 60,175
======= ====== ========== ========== ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,399 $ 6,713 $ (1,099)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Purchased research and development and other 7,511 - 5,648
Depreciation and amortization 2,559 1,970 1,528
Provision for doubtful accounts 471 248 (15)
Deferred income taxes (3,514) (267) 247
Deferred rent - (62) 129
Cash provided by (used in) operating assets and
liabilities:
Accounts receivable (5,521) (3,975) (3,625)
Prepaid and other current assets (401) (789) (213)
Accounts payable 539 168 (885)
Accrued liabilities 1,220 350 234
Deferred revenues 6,403 1,761 (2,130)
Income taxes payable 3,006 1,565 1,780
Net liabilities assumed in pooling of interests
with Microedge (1,101) - -
--------- --------- ---------
Net cash provided by operating activities 15,571 7,682 1,599
--------- --------- ---------
Cash flows from investing activities:
Net cash used in acquisition of the DX Group - - (3,963)
Net cash used in acquisition of Hub Data, net of cash
acquired (4,279) - -
Net cash used in acquisition of Portfolio Management
Systems, net of cash acquired (446) - -
Acquisition of fixed assets (6,186) (5,290) (1,384)
Proceeds from sale of fixed assets 60 - -
Purchases of short-term investments (4,880) (10,041) (1,167)
Maturities of short-term investments 7,229 1,183 1,160
Deposits and other (19) - (287)
--------- --------- ---------
Net cash used in investing activities (8,521) (14,148) (5,641)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 1,581 1,145 706
Proceeds from issuance of common stock 946 869 983
Payment of note issued in acquisition of the DX Group (800)
Payment of debt assumed in acquisition of the DX Group (288)
--------- --------- ---------
Net cash provided by financing activities 2,527 2,014 601
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 9,577 (4,452) (3,441)
Cash and cash equivalents at beginning of year 26,025 30,477 33,918
--------- --------- ---------
Cash and cash equivalents at end of year $ 35,602 $ 26,025 $ 30,477
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes during year $ 2,888 $ 2,515 $ 1,012
Issuance of common stock shares for the acquisition
of Blackbaud: 6,513
Issuance of common stock shares for the acquisition
of Hub Data: 546
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS Advent provides stand-alone and client/server software products,
data interfaces and related maintenance and services that automate, integrate
and support certain mission-critical functions of the front, middle and back
office of investment management organizations. Advent's clients vary
significantly in size and assets under management and include investment
advisors, brokerage firms, banks, hedge funds, corporations, public funds,
foundations, universities and non-profit organizations.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of Advent and its wholly-owned subsidiaries. All intercompany
transactions and amounts have been eliminated.
FINANCIAL INSTRUMENTS Cash equivalents comprise highly liquid investments
purchased with a remaining maturity of 90 days or less. These investments are
maintained with major financial institutions.
Short-term investments are comprised of various marketable securities
carried at cost. These investments are maintained with major financial
institutions. Securities are considered to be held-to-maturity. Amounts reported
for short-term investments are considered to approximate the fair value based on
comparable market information available at the respective balance sheet dates.
Realized investment gains and losses have not been significant.
The amounts reported for cash equivalents, receivables, accounts payable,
accrued liabilities and other financial instruments are considered to
approximate their market values based on comparable market information available
at the respective balance sheet dates, and their short-term nature.
Financial instruments that potentially subject Advent to concentrations of
credit risks comprise, principally, cash, short-term investments, and trade
accounts receivable. Advent invests excess cash through banks, mutual funds, and
brokerage houses primarily in highly liquid investments with remaining
maturities of 90 days or less and has investment policies and procedures which
are reviewed periodically to minimize credit risk. Advent does not require
collateral from its customers but performs ongoing credit evaluations and
maintains reserves for potential credit losses which historically have been
within management's estimates.
DEPRECIATION AND AMORTIZATION Fixed assets are stated at cost. Depreciation
is computed using the straight-line method over the estimated useful life of the
related assets, generally five years. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the estimated useful
life of the assets or the remaining lease term.
CAPITALIZED SOFTWARE Costs incurred for software development prior to
technological feasibility are expensed as product development costs in the
period incurred. Once the point of technological feasibility is reached,
production costs are capitalized.
Such capitalized software costs were not material in 1998, 1997 and 1996.
REVENUE RECOGNITION Advent licenses application software programs and
offers annual maintenance programs which provides for technical support and
updates to software products. Advent's development agreements generally provide
for development of technologies and products which are expected to become part
of Advent's product or product offerings in the future. Certain of these
agreements may require royalty payments based on future sales of the developed
products. Such amounts will be included in costs of goods sold as accrued.
Advent also offers customers on-site consulting services, training, custom
programming, and other services.
The Company adopted the provisions of Statement of Position 97-2, or SOP
97-2, Software Revenue Recognition, as amended by Statement of Position 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software
Revenue Recognition, and delineates the accounting for software product and
maintenance revenue. Under SOP 97-2, the Company recognizes license revenue upon
shipment of a product to the client if a signed contract exists, the fee is
fixed and determinable and collection of resulting receivables is probable. For
contracts with multiple obligations (e.g. deliverable and undeliverable
products, maintenance and other services), the Company allocates revenue to each
component of the contract based on objective evidence of its fair value, which
is specific to the Company, or for products not being sold separately, the price
established by management. The Company recognizes revenue allocated to
undelivered products when the criteria for product revenue set forth above are
met. The Company recognizes revenue allocated to maintenance fees for ongoing
customer support and product updates ratably
<PAGE>
over the period of the maintenance contract. Payments for maintenance fees are
generally made in advance and are non-refundable. Revenues for interface and
other development and custom programming are recognized using the percentage of
completion method of accounting based on the costs incurred to date compared
with the estimated cost of completion. Revenues from professional services are
recognized as work is performed.
NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed
by dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for that period. Diluted net income
(loss) per share is computed giving effect to all dilutive potential common
shares that were outstanding during the period. Dilutive potential shares
consist of incremental common shares issuable upon exercise of stock options and
warrants and conversion of preferred stock for all periods.
RECLASSIFICATIONS In 1998, certain reclassifications were made to the 1997
financial statement amounts to conform to the 1998 presentation. These
reclassifications had no impact on net income (loss), working capital, or cash
flows.
COMPREHENSIVE INCOME Advent has adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
effective January 1, 1998. This statement requires the disclosure of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is the change in equity from
transactions and other events and circumstances other than those resulting from
investments by owners and distributions to owners. There are no significant
components of comprehensive income excluded from net income; therefore, no
separate statement of comprehensive income has been presented.
SEGMENT INFORMATION The Company has adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 31, 1997. SFAS No. 131 supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
changes current practice under SFAS No. 14 by establishing a new framework on
which to base segment reporting and introduces requirements for interim
reporting of segment information.
The Company has determined that it has a single reportable segment
consisting of the development, marketing and sale of stand-alone and
client/server software products, data interfaces and related maintenance and
services that automate, integrate and support certain mission critical functions
of investment management organizations.
Management uses one measurement of profitability and does not disaggregate
its business for internal reporting. The Company's international operations in
1998, 1997 and 1996 have not been material to revenue or net income.
NEW ACCOUNTING PRONOUNCEMENTS In June of 1998, the FASB issued Statement of
Financial Accounting Standards 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 recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Management has not yet evaluated the effects of this change on its operations.
The Company will adopt SFAS No. 133 as required for its first quarterly filing
of fiscal year 2000.
In December 1998, the Accounting Standards Executive Committee (AcSEC)
released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2,
"Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is vendor-specific
objective evidence (VSOE) of the fair values of all the undelivered elements
that are not accounted for by means of long-term contract accounting, (2) VSOE
of fair value does not exist for one or more of the delivered elements, and (3)
all revenue recognition criteria of SOP 97-2 (other than the requirement for
VSOE of the fair value of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is prohibited. The
Company is evaluating the requirements of SOP 98-9 and the effects, if any, on
the Company's current revenue recognition policies.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
<PAGE>
expenses during the reporting period. These estimates are based on information
available as of the date of the financial statements. Actual results could
differ from those estimates.
ACCOUNTING FOR LONG-LIVED ASSETS The Company reviews property, equipment,
goodwill and other intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability is measured by comparison of its carrying amount to
future net cash flows the assets are expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its fair market value.
Intangibles are amortized over their estimated useful lives (typically five to
ten years).
FOREIGN CURRENCY TRANSLATION The functional currency of the Company's
foreign subsidiary is the local foreign currency. All assets and liabilities
denominated in foreign currency are translated into U.S. dollars at the exchange
rate on the balance sheet date. Revenues, costs and expenses are translated at
average rates of exchange prevailing during the period. Translation adjustments
resulting from translation of intercompany accounts are accumulated as a
separate component of stockholders' equity and have not been significant. Gains
and losses resulting from foreign currency transactions are included in the
consolidated statements of operations and have not been significant.
2. ACQUISITIONS
In February 1996, Advent acquired Data Exchange, Inc. (the DX Group), a
private company based in New York, for $4.0 million in cash and an $800,000
note. This note was paid during the third quarter of 1996 and did not bear
interest. The transaction was accounted for as a purchase. Advent incurred a
one-time charge of $5.6 million in connection with the write-off of in-process
research and development. This expense was recorded in purchased research and
development and other expenses. We believe that the technology acquired had not
reached technological feasibility and had no alternative future use.
In November 1996, Advent issued 35,000 shares of common stock in exchange
for all of the outstanding shares of Bold Software, Inc., a private software
development company based in New York. This business combination was accounted
for as a pooling of interests. Prior year amounts have not been restated to
include Bold Software's results of operations as such operations were
immaterial. As a result of this business combination, Advent introduced Advent
Partner, a tax layering and partnership allocation solution which integrates
with Axys.
In February 1998, Advent issued 250,000 shares of common stock in exchange
for all of the outstanding shares of MicroEdge, Inc. MicroEdge is the leading
provider of software products to foundations, corporations and other
organizations to manage their grant-making activities. This business combination
was accounted for as a pooling of interests, and the results of operations of
MicroEdge are included in the Company's financial statements beginning January
1, 1998. The results of operations as well as the assets and liabilities of
MicroEdge, in prior periods, were not material to the consolidated results of
operations or financial position of Advent. Accordingly, the Company did not
restate its financial statements for periods prior to January 1, 1998.
In May 1998, Advent issued 170,000 shares of common stock for certain assets
of the Grants Management Division of Blackbaud, Inc. This acquisition combines
the grants management product line of Blackbaud with MicroEdge. This transaction
was accounted for as a purchase and the results of operations are included in
the Company's financial statements beginning on the acquisition date. Advent
incurred a charge for in-process research and development and other expenses of
$5.4 million in connection with this transaction. We believe that the technology
acquired had not reached technological feasibility and had no alternative future
use. Other intangibles of $2.0 million were recorded in connection with this
acquisition and are being amortized, using a straight-line method, over a period
of 5 years.
In November 1998, Advent issued 15,000 shares of common stock and paid $4.1
million in exchange for substantially all of the outstanding shares of Hub Data,
Inc., a distributor of consolidated securities information and data to
investment management organizations. Hub Data is located in Cambridge, MA and
delivers services to over 240 institutional investment firms. This business
combination was accounted for as a purchase and the results of operations for
Hub Data are included in the Company's financial statements beginning on the
acquisition date. Advent incurred a charge for in-process research and
development expense of $3.0 million in connection with this transaction. We
believe that the technology acquired had not reached technological feasibility
and had no alternative future use. As a result of net liabilities assumed and
acquisition expenses of $1.6 million, goodwill of $3.2 million was recorded in
connection with this transaction and is being amortized, using a straight-line
method, over a period of 7 years.
<PAGE>
In November 1998, Advent paid AUS $583,000 (approximately US $370,000) in
exchange for all of the outstanding shares of Portfolio Management Systems Pty.,
Ltd., a distributor of Advent products in Australia. This business combination
was accounted for as a purchase and the results of operations are included in
the Company's financial statements beginning on the acquisition date. As a
result of net liabilities assumed and acquisition expenses of $2.0 million,
goodwill of $2.4 million was recorded in connection with this transaction and is
being amortized, using a straight-line method, over a period of 10 years.
Subsequent to the acquisition, the name of this subsidiary was changed to Advent
Australia.
The results of operations of Blackbaud, Hub Data and Portfolio Management
Systems in 1998 and 1997 were not material to the consolidated results of
operations of Advent. Accordingly, no pro forma results are presented.
3. BALANCE SHEET DETAIL
The following is a summary of fixed assets:
December 31, 1998 1997
- ----------------------------------------------------------------
(in thousands)
Computer Equipment $ 10,444 $ 6,997
Leasehold Improvements 7,266 4,676
Furniture & Fixtures 978 837
Telephone System 943 672
--------- --------
19,631 13,182
Accumulated Depreciation (8,198) (5,758)
--------- --------
Total fixed assets, net $ 11,433 $ 7,424
========= ========
Depreciation expense was approximately $2,250,000, $1,728,000 and $1,352,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
The following is a summary of other assets:
December 31, 1998 1997
- --------------------------------------------------------------------------------
(in thousands)
Goodwill, net of accumulated amortization of $57 $ 5,529 $ -
Other Intangibles, net of accumulated amortization
of $202 in 1998 and $423 in 1997 1,752 302
Deposits and other 526 176
Deferred Taxes 3,324 292
-------- -------
Total other assets, net $ 11,131 $ 770
======== =======
Amortization expense was approximately $319,000, $242,000 and $181,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
The following is a summary of accrued liabilities:
December 31, 1998 1997
- ---------------------------------------------------------
(in thousands)
Salaries and benefits payable $ 2,624 $ 1,577
Commissions payable 1,229 752
Sales taxes payable 1,212 300
Other 1,205 348
------- -------
Total accrued liabilities $ 6,270 $ 2,977
======= =======
4. Income Taxes
The provision for income taxes includes:
Year Ended December 31,
1998 1997 1996
------------------------------------------
(in thousands)
Current
Federal $ 5,008 $ 3,089 $ 1,994
State 1,461 815 577
Deferred
Federal (2,650) 26 227
State (864) (9) 57
------------------------------------------
Total $ 2,955 $ 3,921 $ 2,855
==========================================
Advent's effective tax rate, as a percent of pre-tax income, differs from
the statutory federal rate as follows:
Year Ended December 31,
1998 1997 1996
-------------------------------------------
Statutory federal rate 35.0% 35.0% 34.0%
State taxes 5.3 7.6 23.8
Purchased research and
development 109.4
Research and development tax
credits (4.4) (3.0) (5.1)
Other 4.3 (2.7) 0.5
-------------------------------------------
Total 40.2% 36.9% 162.6%
===========================================
In 1996, the effective tax rate was higher due to the $5.6 million
write-off of in-process research and development and other expenses. It was not
deductible for tax purposes.
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. The approximate tax effects of temporary differences which give
rise to net deferred tax assets are:
Year Ended December 31,
1998 1997
------------------------------
(in thousands)
Current:
Deferred revenue $ 515 $ 610
Accrued liabilities 725 519
Reserves 543 211
State taxes 117 78
------- -------
1,900 1,418
------- -------
Noncurrent:
Depreciation and amortization 3,149 74
Deferred rent 175 218
------- -------
3,324 292
------- -------
Total deferred tax assets $ 5,224 $ 1,710
======= =======
5. Commitments
Advent leases office space and equipment under noncancelable operating lease
agreements, which expire at various dates through October 2009. Some operating
leases contain escalation provisions for adjustments in the consumer price
index. Advent is responsible for maintenance, insurance, and property taxes and
has five-year extension options on its primary facilities leases. Future minimum
payments under the noncancelable operating leases consist of the following at
December 31, 1998 (in thousands):
1999 $ 3,966
2000 5,062
2001 5,184
2002 5,248
2003 5,300
2004 and thereafter 23,047
--------------
Total minimum lease
payments $ 47,807
==============
Rent expense for 1998, 1997, and 1996 was approximately $2,494,000,
$1,484,000 and $1,159,000, respectively.
6. Employee Benefit Plans
401(k) Plan
Advent has a 401(k) deferred savings plan covering substantially all
employees. Employee contributions, limited to 15% of compensation, are matched
50% by Advent, up to a maximum of $500 per employee per year. Matching
<PAGE>
contributions by Advent in 1998, 1997 and 1996 were $117,000, $103,000 and
$73,000, respectively. In addition to the employer matching contribution, Advent
may make a profit sharing contribution at the discretion of the Board of
Directors. Advent made profit sharing contributions of $143,000, $121,000 and
$87,000 in 1998, 1997 and 1996, respectively.
1995 Employee Stock Purchase Plan
All individuals employed by Advent are eligible to participate in the
Employee Stock Purchase Plan (Purchase Plan) if they are employed by Advent for
at least 20 hours per week and at least five months per year. The Purchase Plan
permits eligible employees to purchase Advent's common stock through payroll
deductions at a price equal to 85% of the lower of the closing sale price for
Advent's common stock reported on the Nasdaq National Market at the beginning
and the end of each six-month offering period. In any calendar year, eligible
employees can withhold up to 10% of their salary and certain variable
compensation. A total of 300,000 shares of common stock have been reserved for
issuance under the Purchase Plan of which 129,000 shares have been issued.
Approximately, 38,000, 38,000 and 53,000 shares were sold through the Purchase
Plan in 1998, 1997 and 1996, respectively.
7. Net Income (Loss) Per Share
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 4,399 $ 6,713 $ (1,099)
Reconciliation of shares used in basic
and diluted per share calculations
BASIC
Weighted average common shares outstanding 8,066 7,521 7,070
Shares used in basic net income (loss) per ------- ------- ---------
share calculation 8,066 7,521 7,070
------- ------- ---------
Basic net income (loss) per share $ 0.55 $ 0.89 $ (0.16)
======= ======= =========
DILUTED
Weighted average common shares outstanding 8,066 7,521 7,070
Dilutive effect of stock options and warrants 637 496 -
------- ------- ---------
Shares used in diluted net income (loss) per
share calculation 8,703 8,017 7,070
------- ------- ---------
Diluted net income (loss) per share $ 0.51 $ 0.84 $ (0.16)
======= ======= =========
Options outstanding at December 31, 1998, 1997
and 1996 not included in computation of
diluted EPS because the exercise price was
greater than the average market price 108,077 419,123 32,846
Price range of options not used in diluted EPS
calculation $37.50 - $42.63 $28.00 - $32.75 $29.75 - $32.75
</TABLE>
<PAGE>
8. Stockholders' Equity
Stock Options
Under Advent's 1992 Stock Plan (the Plan) Advent may grant options to
purchase common stock to employees and consultants. Options granted may be
incentive stock options or nonstatutory stock options and shall be granted at a
price not less than fair market value on the date of grant. Fair market value
(as defined in the Plan) and the vesting of these options shall be determined by
the Board of Directors. The options generally vest over 5 years and expire no
later than 10 years from the date of grant. Unvested options on termination of
employment are canceled and returned to the Plan.
The activity under the Plan was as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------------
Weighted
Aggregate Average
Available Number of Price Per Exercise Price Per
for Grant Options Share Price Share
--------- ---------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 153,000 1,026,000 $0.63 - 12.00 $ 4,160,000 $ 4.05
Authorized 400,000 - - - -
Options granted (412,000) 412,000 19.50 - 32.00 10,376,000 25.18
Options exercised - (283,000) 0.63 - 12.00 (642,000) 2.27
Options canceled 58,000 (58,000) 1.00 - 19.50 (754,000) 13.00
--------- ---------- ------------- ------------ --------
Balances, December 31, 1996 199,000 1,097,000 0.63 - 32.00 13,140,000 11.98
Authorized 600,000 - - - -
Options granted (836,000) 836,000 25.00 - 28.75 21,737,000 26.00
Options exercised - (198,000) 0.63 - 19.50 (853,000) 4.31
Options canceled 145,000 (145,000) 1.00 - 32.00 (2,902,000) 20.01
--------- ---------- ------------- ------------ --------
Balances, December 31, 1997 108,000 1,590,000 0.63 - 32.00 31,122,000 19.57
Authorized 500,000 - - - -
Options granted (666,000) 666,000 27.50 - 42.63 22,004,000 33.04
Options exercised - (151,000) 0.63 - 32.00 (1,372,000) 9.09
Options canceled 107,000 (107,000) 5.00 - 42.63 (2,594,000) 24.22
--------- ---------- ------------- ------------ --------
Balances, December 31, 1998 49,000 1,998,000 $1.00 - 42.63 $ 49,160,000 $ 24.60
========= ========== ============= ============ ========
</TABLE>
At December 31, 1998, 1997 and 1996, 571,000, 331,000 and 241,000 options
outstanding were exercisable with an aggregate exercise price of $9,691,000,
$3,190,000 and $957,000, respectively.
In November 1998, the Board of Directors approved the 1998 Nonstatutory
Stock Option Plan ("Nonstatutory Plan") and reserved 100,000 shares of common
stock for issuance thereunder. Under Advent's 1998 Nonstatutory Plan, Advent may
grant options to purchase common stock to employees and consultants, excluding
persons who are executive officers and directors. Options granted are
nonstatutory stock options and shall be granted at a price not less than fair
market value on the date of grant. Fair market value (as defined in the
Nonstatutory Plan) and the vesting of these options shall be determined by the
Board of Directors. The options generally vest over 5 years and expire no later
than 10 years from the date of grant. Unvested options on termination of
employment are canceled and returned to the Nonstatutory Plan. The activity
under the Nonstatutory Plan was as follows:
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------------------------------------
Weighted
Aggregate Average
Available Number of Price Per Exercise Price Per
for Grant Options Share Price Share
----------- ------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Authorized 100,000 - $ - $ - $ -
Options granted (92,000) 92,000 37.25 3,423,000 37.25
Options exercised - - - - -
Options canceled - - - - -
----------- ------------- ------------ --------------- ------------
Balances, December 31, 1998 8,000 92,000 $ 37.25 $3,423,000 $ 37.25
=========== ============= ============ =============== ============
</TABLE>
Of the 92,000 options under the Nonstatutory Plan outstanding at December 31,
1998, none were exercisable.
In addition to the Plan and the Nonstatutory Plan, Advent had granted
options to purchase common stock to employees or consultants under special
arrangements. These options have an exercise price of $1.00 per share. There
were 7,000, 10,000 and 12,000 of these options outstanding at December 31, 1998,
1997 and 1996, respectively. The change in each period was a result of the
exercise of 3,000, 2,000 and 4,000 options during 1998, 1997 and 1996,
respectively. The shares outstanding at December 31, 1998 are fully vested.
Advent's 1995 Director Option Plan (the Director Plan) provides for the
grant of nonstatutory stock options to non-employee directors of Advent (Outside
Directors). Under the Director Plan, each Outside Director is granted a
non-qualified option to purchase 10,000 shares on the last to occur of the date
of effectiveness of the Director Plan or the date upon which such person first
becomes a director with an exercise price equal to the fair market value of
Advent's common stock as of the date of the grant. In subsequent years, each
Outside Director is automatically granted an option to purchase 2,000 shares on
December 1 with an exercise price equal to the fair value of Advent's common
stock on that date. Options granted under the Director Plan vest over a five
year period and have a ten year term.
The activity under the Director Plan was as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------
Weighted
Aggregate Average
Available Number of Price Per Exercise Price Per
for Grant Options Share Price Share
---------- ---------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 45,000 30,000 $ 18.00 $ 540,000 $ 18.00
Options granted (6,000) 6,000 32.75 196,500 32.75
---------- ---------- ---------------- ------------ ----------
Balances, December 31, 1996 39,000 36,000 18.00 - 32.75 736,500 20.45
Options exercised - (2,800) 18.00 (50,400) 18.00
Options granted (24,000) 24,000 24.88 - 25.00 599,500 24.98
Options canceled 9,200 (9,200) 18.00 - 32.75 (194,500) 21.14
---------- ---------- ---------------- ------------ ----------
Balances, December 31, 1997 24,200 48,000 18.00 - 32.75 1,091,100 22.73
Options granted (8,000) 8,000 38.75 310,000 38.75
Options exercised - - - - -
Options canceled - - - - -
---------- ---------- ---------------- ------------ ----------
Balances, December 31, 1998 16,200 56,000 $18.00 - 38.75 $ 1,401,100 $ 25.02
========== ========== ================ ============ ==========
</TABLE>
At December 31, 1998, 1997 and 1996, 19,000, 8,300 and 6,000 options outstanding
were exercisable with an aggregate exercise price of $403,000, $150,000 and
$108,000, respectively.
<PAGE>
In addition to the Director Plan, Advent granted options, prior to 1994, to
an Outside Director for the purchase of 96,000 shares of common stock with an
exercise price of $0.63 per share. These options were exercised during 1996.
At December 31, 1998, Advent had reserved 2,232,000 shares of common stock
for the exercise of stock options under all of its option plans.
Advent has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for Advent's stock option
plans. If compensation had been determined based on the fair value at the grant
date for awards in 1998, 1997 and 1996 consistent with the provisions of SFAS
No. 123, Advent's net income (loss) and net income (loss) per share for the year
ended December 31, 1998, 1997 and 1996, respectively, would have been as
follows:
1998 1997 1996
--------- --------- -----------
Net income (loss) - as reported $ 4,399 $ 6,713 $ (1,099)
Net income (loss) - pro forma $ 1,380 $ 5,026 $ (1,680)
PER SHARE DATA
DILUTED
Net income (loss) per share
- - as reported $ 0.51 $ 0.84 $ (0.16)
Net income (loss) per share
- - pro forma $ 0.16 $ 0.63 $ (0.24)
BASIC
Net income (loss) per share
- - as reported $ 0.55 $ 0.89 $ (0.16)
Net income (loss) per share
- - pro forma $ 0.17 $ 0.67 $ (0.24)
Such pro forma disclosures may not be representative of future compensation
costs because options vest over several years and additional grants are made
each year.
The weighted-average grant-date fair value of options granted were $16.81,
$14.50 and $14.50 per option for the years ended December 31, 1998, 1997 and
1996, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes valuation model with the following weighted average
assumptions:
1998 1997 1996
--------------- --------------- ----------------
Risk-free interest rate 4.9% 5.99% 6.03%
Volatility 60.4 56.91 55.04
Expected life 5 years 5 years 5 years
Expected dividends None None None
Average turnover rate 8% 8% 8%
The risk-free interest rate was calculated in accordance with the grant
date and expected life. Volatility was calculated using an analysis of an Advent
peer group of publicly traded companies. The weighted average expected life was
calculated based on the vesting period and the exercise behavior of the
participants.
The fair value for the Employee Stock Purchase Plan rights were also
estimated at the date of grant using a Black-Scholes options pricing model with
the following assumptions for 1998, 1997 and 1996: risk-free interest rates of
4.9%, 5.99% and 6.03%, respectively; dividend yield of 0%; volatility factors of
60%, 57% and 55% for 1998, 1997 and 1996, respectively; and a six-month expected
life. The weighted average fair value of the ESPP rights granted in 1998, 1997
and 1996 was $9.61, $8.96 and $9.84, respectively.
<PAGE>
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------------
Weighted
Average
Remaining
Number Contractual Weighted Average Number Weighted Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$1.00 - $6.50 373,000 5.73 $ 4.79 265,000 $ 4.34
$18.00 - $25.88 624,000 8.67 24.41 160,000 23.69
$27.50 - $38.75 1,025,000 9.01 30.61 169,000 29.07
$38.75 - $42.63 131,000 9.33 42.63 3,000 42.63
-------------- --------- ---------------- ------------- ----------------
2,153,000 8.37 $ 25.07 597,000 $ 16.91
============== ========= ================ ============= ================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Advent Software, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Advent
Software, Inc. and its subsidiaries at December 31, 1998 and December 31, 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
January 15, 1999
<PAGE>
SELECTED FINANCIAL DATA
SELECTED ANNUAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1998* 1997 1996* 1995 1994*
- ---------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues $ 70,998 $ 48,613 $ 36,744 $ 25,957 $ 20,101
Income from operations 5,912 9,398 591 4,158 1,648
Net income (loss) 4,399 6,713 (1,099) 2,819 1,064
NET INCOME (LOSS) PER SHARE DATA
DILUTED
Net income (loss) per share 0.51 0.84 (0.16) 0.46 0.18
Shares used in per share calculation** 8,703 8,017 7,070 6,160 5,844
BASIC
Net income (loss) per share 0.55 0.89 (0.16) 0.82 0.36
Shares used in per share calculation** 8,066 7,521 7,070 3,455 2,925
Balance Sheet
Working capital $ 38,148 $ 38,836 $ 32,775 $ 31,008 $ 5,093
Total assets 87,210 59,285 46,691 44,750 15,594
Long-term liabilities 537 537 599 470 708
Stockholders' equity 60,175 46,493 37,062 34,584 8,291
</TABLE>
<PAGE>
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1998*
Net revenues $ 14,049 $ 16,706 $ 18,604 $ 21,638
Income (loss) from operations 1,622 (2,155) 4,288 2,159
Net income (loss) 1,258 (1,582) 3,062 1,662
Net income (loss) per share - Diluted 0.15 (0.20) 0.35 0.19
Net income (loss) per share - Basic 0.16 (0.20) 0.38 0.20
1997
Net revenues $ 9,553 $ 11,699 $ 12,958 $ 14,403
Income from operations 1,121 2,169 2,817 3,291
Net income 851 1,522 2,007 2,333
Net income per share - Diluted 0.11 0.19 0.25 0.29
Net income per share - Basic 0.12 0.20 0.27 0.31
</TABLE>
PRICE RANGE OF COMMON STOCK
NASDAQ National Market Symbol "ADVS" High Low
- ------------------------------------------------------------------
Year Ended December 31, 1998
First Quarter $ 48 $ 26 1/4
Second Quarter 48 1/8 33 1/2
Third Quarter 52 1/2 30
Fourth Quarter 48 5/8 19 13/16
Year Ended December 31, 1997
First Quarter $ 30 3/4 $ 20 1/4
Second Quarter 33 18 5/8
Third Quarter 33 25 1/4
Fourth Quarter 31 3/4 22 1/2
* In 1998, 1996 and 1994, Advent recognized charges of $8.4 million, $5.6
million and $1.0 million, respectively, in connection with the write-off of
purchased research and development and other expenses. Excluding these charges,
net income per share - diluted would have been $1.18, $0.58 and $0.27 in 1998,
1996 and 1994, respectively. For further explanation, see "Purchased Research
and Development and Other" in Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 40.
** For an explanation of shares used in per share calculations, see Note 1 of
the Notes to Consolidated Financial Statements.
<PAGE>
STOCK INFORMATION
Advent's common stock has traded on the Nasdaq National Market under the symbol
ADVS since it's initial public offering on November 15, 1995.
Advent has not paid cash dividends on its common stock and presently intends to
continue this policy in order to retain its earnings for the development of its
business.
TRANSFER AGENT & REGISTRAR
EquiServe is the Transfer Agent and Registrar of Advent's common stock and
maintains stockholder accounting records. Inquiries regarding lost certificates,
consolidation of accounts, and changes in address, name or ownership should be
addressed to:
EquiServe
Boston EquiServe Division
Shareholder Services
150 Royall Street
Canton, MA 02021
Telephone: (781) 575-3120
Internet: http://www.equiserve.com
EXHIBIT 21.1
SUBSIDIARIES OF ADVENT SOFTWARE, INC.
Name State of Incorporation
- ------------------------ ----------------------
MicroEdge, Inc. New York
Advent Technology, Inc. Delaware
Bold Software, Inc. New York
Advent Australia Australia
HubData, Inc. Massachusetts
Data Exchange, Inc. Pennsylvania
Second Street Securities Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Advent Software, Inc. on Form S-8 (File No.'s 333 - 918 and 333-28725) of our
report dated January 15, 1999, on our audit of the consolidated financial
statements of Advent Software, Inc. as of December 31, 1998 and 1997, and for
the years ended December 31, 1998, 1997 and 1996, which report is incorporated
by reference in this report on Form 10-K, and our report dated January 15, 1999,
on our audit of the financial statement schedule, which report is included in
this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 35,602
<SECURITIES> 7,682
<RECEIVABLES> 17,814
<ALLOWANCES> 362
<INVENTORY> 0
<CURRENT-ASSETS> 64,646
<PP&E> 19,631
<DEPRECIATION> 8,198
<TOTAL-ASSETS> 87,210
<CURRENT-LIABILITIES> 26,498
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 60,093
<TOTAL-LIABILITY-AND-EQUITY> 87,210
<SALES> 36,588
<TOTAL-REVENUES> 70,998
<CGS> 2,931
<TOTAL-COSTS> 13,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,354
<INCOME-TAX> 2,955
<INCOME-CONTINUING> 4,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,399
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.51
</TABLE>
